CourseLover

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About CourseLover

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Algebra,Applied Sciences See all
Algebra,Applied Sciences,Architecture and Design,Art & Design,Biology,Business & Finance,Calculus,Chemistry,Engineering,Health & Medical,HR Management,Law,Marketing,Math,Physics,Psychology,Programming,Science Hide all
Teaching Since: May 2017
Last Sign in: 286 Weeks Ago, 6 Days Ago
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Education

  • MCS,MBA(IT), Pursuing PHD
    Devry University
    Sep-2004 - Aug-2010

Experience

  • Assistant Financial Analyst
    NatSteel Holdings Pte Ltd
    Aug-2007 - Jul-2017

Category > Accounting Posted 09 Dec 2017 My Price 10.00

return on invested capital (ROIC)

Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $16 million in invested capital, has $2.4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 45% and pays 13% interest on its debt, whereas LL has a 20% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure.

  1. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places.
    ROIC for firm LL is  % ROIC for firm HL is  %
  2. Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places.
    ROE for firm LL is   % ROE for firm HL is   %
  3. Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 20% to 60%, even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places.
    %

Answers

CourseLover
(12)
Status NEW Posted 09 Dec 2017 07:12 AM My Price 10.00

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