Ch13-Q1-3 - Ch13-Q3c EBIT Interest TAX N. I. Recession...

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Ch13-Q3c Recession Normal Expansion EBIT $3,600 $6,000 $7,500 Interest $- $- $- TAX $1,260 $2,100 $2,625 N. I. $2,340 $3,900 $4,875 ROE 3.34% 5.57% 6.96% % chg ROE -40.0% - 25.0% Ch13-Q3c Recession Normal Expansion EBIT $3,600 $6,000 $7,500 Interest $2,100 $2,100 $2,100 TAX $525 $1,365 $1,890 N. I. $975 $2,535 $3,510 ROE 2.79% 7.24% 10.03% % chg ROE -61.5% - 38.5% if MV/BV = 1 % chg ROE = %chg EPS regardless of recession / normal / expansion state whether it is all EQUITY or Leveraged whether it is taxed or NOT
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No Debt MV/BV=1 MV $70,000 BV $70,000 # shs 3,500 Current P $20 ROE= N.I/EQUITY = N.I/70000 Recap issue 35K debt MV $35,000 BV $35,000 Current P $20 new # shs 1,750 Debt $35,000 Interest 2,100
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Recession Normal Expansion EBIT $3,600 $6,000 $7,500 Interest $- $- $- N. I. $3,600 $6,000 $7,500 ROE 5.14% 8.57% 10.71% % chg ROE -40.0% - 25.0% Ch13-Q3b Recession Normal Expansion EBIT $3,600 $6,000 $7,500 Interest $2,100 $2,100 $2,100 N. I. $1,500 $3,900 $5,400 ROE 4.29% 11.14% 15.43%
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This note was uploaded on 06/28/2010 for the course FINANCE FIN3410 taught by Professor On9 during the Spring '10 term at New England Conservatory.

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Ch13-Q1-3 - Ch13-Q3c EBIT Interest TAX N. I. Recession...

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