Question

Please show calculations

Help roblems You are considering a stock investment in one of two firms (NoEquity, Inc. and NoDebt, Inc.), both of which operate in the same industry and have identical operating income of $8.5 milion. NoEquity, Inc. finances its $55 million in assets with $54 million in debt on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc. finances its $55 million in assets with no debt and $55 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. Calculate the net income and return on assets for the two firms. (Enter your dollar answers in millions of dollers. Round all answers to 2 decimal places.) AllDebt :5AlEquity Income available for asset funders Retum on asset-funders' investment

Answer 1

	AllDebt ( $ in million )	AllEquity ( $ in million )
Operating income	$8.5	$8.5
(-) Interest expense	( $5.4 ) [ 10% * $54 ]	-
Income before tax	$3.1	$8.5
(-) Tax @ 30%	( $0.93 )	( $2.55 )
Income after tax	$2.17	$5.95
Income available for asset funders [ Operating income - Tax ]	$7.57	$5.95
Return on asset-funder's investment [ ( Income available for asset funders / Total assets ) * 100 ]	13.76%	10.82%