Project requires $700,000 in assets and will be 100% equity financed. If EBIT is
ID: 2671587 • Letter: P
Question
Project requires $700,000 in assets and will be 100% equity financed. If EBIT is $145,000 and tax rate is 35%, what is ROE?Same facts as above, except EBIT is ($60,000). Assume co. has large, positive income overall. What is ROE?
Now back to $145,000 EBIT, but assume 50% equity and 50% debt financed. If interest rate is 12%, what is ROE?
Finally, combining parts 2 and 3 above, EBIT is ($60,000) and is 50%-50% financed with 12% interest rate. What is ROE? (Again, large, positive income for the co. as a whole.)
Explanation / Answer
EBIT = 145000 Taxes = 50750 EAT = 145000-50750 = 94250 ROE = 94250/700000*100 = 13.46% answer EBIT = (60000) ROE = (60000)/700000*100 = -8.57% answer EBIT = 145000 Interest = 42000 EBT = 103000 Taxes = 36050 EAT = 103000-36050 = 66950 ROE = 66950/350000*100 = 1912% answer EBIT = (60000) INterest = 42000 EBT = (102000) ROE = (102000)/350000*100 = 29.14% answer Happy to help
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