View the step-by-step solution to:

05 201014 Net Income $:4172 Average number of common shares outstanding 125 124 12 2 Average common shareholder Equity $1.

1)

ROCE and EPS Calculation and Interpretation amounts are thousands

asr.png


a. Calculate ROCE for the three years.

b. Calculate basic EPS for the three years.

c. Interpret your findings for both ROCE and EPS. 


2)

Niglow Corporation produces metal castings. In the past year it earned a 10% return on its net operating assets base of $10M. Niglow needs $10M to expand its operations, and has the option of obtaining none, some, or all of the proceeds from the bank. Currently the company is all equity financed. It expects to be able to maintain its return on net operating assets after the expansion. The bank has indicated that the amount it will charge on the loan will be dependent upon the resultant debt/equity ratio. Specifically, the rates will be 8%, 9%, 10% and 12% for debt to equity ratios less than or equal to 0.25, 0.5, 1.0 and over 1.0, respectively. Niglow's tax rate is 40%.

b. Calculate Niglow's return on common equity if the expansion is financed:

i. using all equity

ii. 50% debt, 50% equity

iii. all debt

c. What would Niglow's return on net operating assets need to be for the return on equity to be decreased by financing the expansion using all debt. 

asr.png

20:05
201014
Net Income
$:4172
Average number of common
shares outstanding
125
124
12 2
Average common shareholder
Equity
$1. 231
$725

Top Answer

Question - 1 Year .................................................2006............2005..........2004 (a) ROE... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online