Solution
Item
Plan 1 (all equity)
Plan 2 (debt –equity)
EBIT (20%)
5,000,000
5,000,000
Less INTEREST (12%)
0
2,250,000
Profit before tax
5,000,000
2,750,000
Less Taxes (30%)
1,500,000
825,000
Profit after taxes (PAT)
3,500,000
1,925,000
EPS = PAT/No of shares or ROE=PAT/Equity
3.5
14%
7.7
30.8%
Conclusion
Plan 2 has higher returns
ITS = 30% * 18,750,000 = 5,620,500
Carolinemakenamutwiri answered the question on December 14, 2018 at 11:11
- State and briefly explain whether the following statements are TRUE, FALSE or UNCERTAIN (10 marks) For an unlevered firm, the weighted average cost of capital...(Solved)
State and briefly explain whether the following statements are TRUE, FALSE or UNCERTAIN (10 marks)
For an unlevered firm, the weighted average cost of capital (RWACC) equals the cost of capital of an unlevered firm (R0).
For CAPM to work, the market must have a strong-form efficiency
There is no benefit to diversification if asset returns are uncorrelated.
In valuation, excess earnings represent the estimated value of intangibles.
The flow to equity approach is most preferred in situations where the project’s level of debt is known.
Date posted: December 14, 2018. Answers (1)
- Advantages of franchisor (Solved)
Advantages of franchisor
Date posted: November 15, 2018. Answers (1)
- Money supply refers to the currency in the form of notes and coins with the public including all the deposits with deposits taking institutions. (Mudida,...(Solved)
Money supply refers to the currency in the form of notes and coins with the public including all the deposits with deposits taking institutions. (Mudida, 2009). Discuss showing any four determinations of money supply.
Date posted: September 16, 2018. Answers (1)
- Outline the reasons for growth of government expenditure(Solved)
Outline the reasons for growth of government expenditure
Date posted: August 22, 2018. Answers (1)
- Outline the importance of public expenditure.(Solved)
Outline the importance of public expenditure.
Date posted: August 22, 2018. Answers (1)
- Discuss reasons why government borrow.(Solved)
Discuss reasons why government borrow.
Date posted: August 22, 2018. Answers (1)
- Outline the differences between Public and Private Debts(Solved)
Outline the differences between Public and Private Debts
Date posted: August 22, 2018. Answers (1)
- What are the circumstances under which procuring entity can transfer the authority?(Solved)
What are the circumstances under which procuring entity can transfer the authority?
Date posted: August 21, 2018. Answers (1)
- Explain the functions of Inspection and acceptance committee in public procurement(Solved)
Explain the functions of Inspection and acceptance committee in public procurement.
Date posted: August 21, 2018. Answers (1)
- Outline the functions of Public Procurement Oversight Authority(Solved)
Outline the functions of Public Procurement Oversight Authority.
Date posted: August 20, 2018. Answers (1)
- What are the organizations that nominate members Public Procurement Oversight Advisory Board?(Solved)
What are the organizations that nominate members Public Procurement Oversight Advisory Board?
Date posted: August 20, 2018. Answers (1)
- What are the Responsibilities of the Director General in public procurement?(Solved)
What are the Responsibilities of the Director General in public procurement?
Date posted: August 20, 2018. Answers (1)
- What are the contents of the Procurement Plan?(Solved)
What are the contents of the Procurement Plan?
Date posted: August 20, 2018. Answers (1)
- What are the functions of procurement department in public organisation?(Solved)
What are the functions of procurement department in public organisation?
Date posted: August 20, 2018. Answers (1)
- Outline the responsibilities of User Department in Procurement(Solved)
Outline the responsibilities of User Department in Procurement.
Date posted: August 20, 2018. Answers (1)
- What are the general responsibilities of Transition County Treasuries?(Solved)
What are the general responsibilities of Transition County Treasuries?
Date posted: August 20, 2018. Answers (1)
- outline the objectives of public debt(Solved)
outline the objectives of public debt
Date posted: August 20, 2018. Answers (1)
- Outline the benefits of capital budgeting in public sector(Solved)
Outline the benefits of capital budgeting in public sector.
Date posted: August 16, 2018. Answers (1)
- What are some of the reasons why financial management in government departments is different from financial management in an industrial company?(Solved)
What are some of the reasons why financial management in government departments is different from financial management in an industrial company?
Date posted: August 16, 2018. Answers (1)
- What are the basic assumptions of capital asset pricing model?(Solved)
What are the basic assumptions of capital asset pricing model?
Date posted: August 16, 2018. Answers (1)