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jek_recluse [69]
1 year ago
10

Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $20 m

illion in invested capital, has $3 million of EBIT, and is in the 25% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 55% and pays 12% interest on its debt, whereas LL has a 30% debt-to-capital ratio and pays only 8% interest on its debt. Neither firm uses preferred stock in its capital structure. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places.
Business
1 answer:
vodomira [7]1 year ago
8 0

Answer:

11.25%; 11.25%

Explanation:

Given that,

Invested capital of each company = $20 million

EBIT = $3 million

Federal-plus-state tax bracket = 25%

ROIC for LL:

= EBIT × (1 - Tax rate) ÷ Invested capital

= [$3 × (1 - 25%)] ÷ $20

= 0.1125 × 100

= 11.25%

ROIC for HL:

= EBIT × (1 - Tax rate) ÷ Invested capital

= [$3 × (1 - 25%)] ÷ $20

= 0.1125 × 100

= 11.25%

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Akimi4 [234]

Answer: Option (D)

Explanation:

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8 0
2 years ago
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Maru [420]

Answer:

e. Less than 100

Explanation:

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8 0
2 years ago
Eric is considering an investment that will pay $8, 200 a year for five years, starting one year from today. What is the maximum
astra-53 [7]

Answer:

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Explanation:

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Present value would be

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And, refer to the PVIFA table

4 0
1 year ago
Herb has $20,000 in an interest-bearing time deposit with the Applebottom Bank and Trust Company. While earning a relatively att
topjm [15]

Answer:

CD   Certificate of deposit.

Explanation:

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4 0
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