Campus Deli problem answers

Campus Deli problem answers - FirmU $20,000 $20,000 $20,000...

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Income Statements and Ratios Table IC 14-1 Firm U Firm L Assets $20,000  $20,000  $20,000  $20,000  $20,000  $20,000  Equity $20,000  $20,000  $20,000  $10,000  $10,000  $10,000  Probability 0.25 0.50  0.25  0.25 0.5 0.25 Sales $6,000  $9,000  $12,000  $6,000  $9,000  $12,000  Operating Costs 4,000 6,000 8,000 4,000 6,000 8,000 $2,000  $3,000  $4,000  $2,000  $3,000  $4,000  Interest (12%) $0  $0  $0  $1,200  $1,200  $1,200  Earnings before taxes $2,000  $3,000  $4,000  $800  $1,800  2,800 Taxes (40%) $800  1,200 1,600 $320  720 1,120 net Income $1,200  $1,800  $2,400  $480  $1,080  $1,680  10.00% 15.00% 20.00% 10.00% 15.00% 20.00% ROE 6.00% 9.00% 12.00% 4.80% 10.80% 16.80% TIE 1.7x 2.5x 3.3x 15.00% 15.00% Expected ROE 9.00% 10.80% Expected TIE 2.5x        BEP 3.50% 3.50%       ROE 2.10% 4.20%       TIE 0.00% 0.6x Earnings before interest      and taxes Basic earning power      (BEP - EBiT/Assets) Expected basic earnings      power
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D/A Ratio D/E Ratio rd  $-    0.0000 0.0000  $250  0.0125 0.0143 AA 8.00%  $500  0.0250 0.3333 AA 9.00%  $750  0.3750 0.6000 BBB 11.50%  $1,000  0.5000 1.0000 BBB 14.00% Amount Borrowed Bond Rating
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Debt EBIT 1 $0  400,000 (0.6) 80,000 $3.00  2  $250,000  [400,000-.08 (250,000)](0.6)/70 70,000 $3.26  3  $500,000  [400,000-.09(500,000)](0.6)/60 60,000 $3.55  4  $750,000  [400,000-0.115(750,000)](0.60)/50 50,000 $3.77  5  $1,000,000  [400,000-.14(1,000,000)](.60)/40 40,000 $3.90  1 Earnings per share is $3.00 on 80,000 shares 2
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