Campus Deli problem answers

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

This preview shows pages 1–4. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern