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The company A has higher fixed cost in its cost structure than company B. The company A should have higher asset beta. A higher proportion of fixed cost in your cost structure means that the operating leverage is high for company A. When the operating leverage for company A is high that means that the company has more business risk and its operating income is very sensitive. Higher operating leverage means your operating income would be more sensitive. For company B if the fixed cost is less, then its asset beta should be lower in comparison to Company A.
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3. (3 pt) Two companies (A and B) in the same industry that sell the same...
Two firms are identical except for their capital structure. Company A is funded by 30% debt...
Two firms are identical except for their capital structure. Company A is funded by 30% debt and 70% equity. Company B is funded by 40% debt and 60% equity. (a) What are the relationships between their asset betas and equity betas? Fill in the blank. Company A (“>”, “=”, or “<”) Company B A’s Asset beta B’s Asset beta A’s Equity beta B’s Equity beta (b) Briefly explain your rationale for the answers provided in part (a) above.
Companies A and B are in the same industry and are identical except for cost structure....
Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A's net income would be substantially higher than B's. Based on this information, Multiple Choice Company B's cost structure has higher fixed costs than A's. Company A's cost structure has more variable costs than B's. At a volume of 50,000 units, Company A's magnitude of operating leverage was...
Compare and analyze ratios of the two companies. The two companies are in the same industry....
Compare and analyze ratios of
the two companies. The two companies are in the same industry.
- Fixed Asset Turnover: company a: Fixed Asset Turnover for The Coca-Cola Company is 3.5x for 2018. company b: Fixed Asset Turnover for Pepsi 3.7x for 2018. - Accounts Receivable Turnover: company a: (Sep 27 2019) III. Quarter accounts receivable turnover ratio 8.39. company b: (Sep 07 2019) III. Quarter accounts receivable turnover ratio is 8.26.
Company A and Company B are similar companies operating in the same industry. Initially, both Company...
Company A and Company B are similar companies operating in the
same industry.
Initially, both Company A and Company B have an enterprise value
of $400 million – that is to say, the value of the operating
business is $400 million. Note that the enterprise value is the
same as the market value of equity (Share price x number of shares
outstanding = $400 million) for Company A and different from market
value of equity for Company B.
Company A...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 1-6 Debt/Equity Total Aspets Tax Rate Net Income Company V Company W Company X 060 4.0000 100 1. Compared to larger companies in the widget industry, smaller companies in the Widget industry...
Pick two publicly traded companies in the same industry. Apple Inc. and Microsoft 2. Calculate the...
Pick two publicly traded companies in the same industry. Apple Inc. and Microsoft 2. Calculate the ratios for 2015 and 2016 that you deem necessary for each company for two years. Some examples are working capital, current ratio, current cash debt coverage ratio, inventory turnover ratio, days in inventory, receivables turnover ratio, average collection period, debt to asset ratio, cash debt coverage ratio, times interest earned ratio, free cash flow, earnings per share, price earnings ratio, gross profit rate, profit...
ow are five comparable companies that compete in the Widget industry: Compony company. Use the financial...
ow are five comparable companies that compete in the Widget industry: Compony company. Use the financial statement information in the table below to help answer quest ompany X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the Debt/Equity 0.5385 3.0000 0.5625 0.4925 YTM Total Assets Tax Rate Net Income 80% 9.0% 6.0% 6.0% 30.0% 35.0% 1060 1000 650 30.0% 100 1. Compared to larger companies in the Widget industry, smaller companies in...
there are two companies each with a net income of 1.2 million and total asset value...
there are two companies each with a net income of 1.2 million and total asset value of $10 million. Company A has a capital structure that is 35% debt and the rest equity. Company B uses 60% debt. Which company has a higher ROE, and what is it? A. Company B, 26.4% B. Company B, 17.3% C. Company A, 23.5% D. Company A, 18.5% E. Company B, 30.0%
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc....
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. Sales $500,000 $625,000 Less: Variable costs 250,000 125,000 Contribution margin $250,000 $500,000 Less: Fixed costs 200,000 450,000 Operating income $50,000 $50,000 Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company. Trimax, Inc. $ Quintex, Inc. $ Why is the break-even point for Quintex, Inc., higher? 3. Suppose...
Q11-Q13] HP and Dell are companies in the exact same business. They both used to have the same ca...
Q11-Q13] HP and Dell are companies in the exact same business. They both used to have the same capital structure with a debt-to-equity ratio of 1/19. Recently, however, Dell hired many investment bankers and consultants at great expense, and decided to change its debt-to-equity ratio to 1/5. HP figures that they will copy Dell, and move their debt-to-cquity ratio to 1/5 as well HP doesn't want to pay for the bankers and consultants that Dell used. Thus, HP relies on...
Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A's net income would be substantially higher than B's. Based on this information, Multiple Choice Company B's cost structure has higher fixed costs than A's. Company A's cost structure has more variable costs than B's. At a volume of 50,000 units, Company A's magnitude of operating leverage was...
Compare and analyze ratios of
the two companies. The two companies are in the same industry.
- Fixed Asset Turnover: company a: Fixed Asset Turnover for The Coca-Cola Company is 3.5x for 2018. company b: Fixed Asset Turnover for Pepsi 3.7x for 2018. - Accounts Receivable Turnover: company a: (Sep 27 2019) III. Quarter accounts receivable turnover ratio 8.39. company b: (Sep 07 2019) III. Quarter accounts receivable turnover ratio is 8.26.
Company A and Company B are similar companies operating in the
same industry.
Initially, both Company A and Company B have an enterprise value
of $400 million – that is to say, the value of the operating
business is $400 million. Note that the enterprise value is the
same as the market value of equity (Share price x number of shares
outstanding = $400 million) for Company A and different from market
value of equity for Company B.
Company A...
Below are five comparable companies that compete in the Widget industry: Company V, Company W Company X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the company. Use the financial statement information in the table below to help answer questions 1-6 Debt/Equity Total Aspets Tax Rate Net Income Company V Company W Company X 060 4.0000 100 1. Compared to larger companies in the widget industry, smaller companies in the Widget industry...
ow are five comparable companies that compete in the Widget industry: Compony company. Use the financial statement information in the table below to help answer quest ompany X, Company Y, and Company Z. Assume the greater the assets on the balance sheet, the larger the Debt/Equity 0.5385 3.0000 0.5625 0.4925 YTM Total Assets Tax Rate Net Income 80% 9.0% 6.0% 6.0% 30.0% 35.0% 1060 1000 650 30.0% 100 1. Compared to larger companies in the Widget industry, smaller companies in...
Q11-Q13] HP and Dell are companies in the exact same business. They both used to have the same capital structure with a debt-to-equity ratio of 1/19. Recently, however, Dell hired many investment bankers and consultants at great expense, and decided to change its debt-to-equity ratio to 1/5. HP figures that they will copy Dell, and move their debt-to-cquity ratio to 1/5 as well HP doesn't want to pay for the bankers and consultants that Dell used. Thus, HP relies on...
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