2. Given the following information about a farm business: Rate of return on assets 8% Variance...
2. Given the following information about a farm business: Rate
of return on assets 8%
Variance of return on assets 4%
Interest rate on debt 6%
Variance of interest on debt 9% Asset to Equity 5:1 Tax rate 10% Marginal rate of consumption 50%
a. Compute the expected growth in equity.
b. What level of risk is associated with the rate of growth found in a. of the growth in equity.
c. What might the manager do to increase the rate of growth?
d. If the farm business changes its asset to equity ratio to 7:1, find the changes in the expected growth and risk.
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2. Given the following information about a farm business: Rate
of return on assets 8%
Variance...
Given the following information about a farm business: Debt-to-equity ratio 2.0 Expected return on assets 12%...
Given the following information about a farm business: Debt-to-equity ratio 2.0 Expected return on assets 12% Expected interest rate on debt 896 Consumption rate 60% Tax rate 20% Standard deviation of return on assets 4% Standard deviation of interest rate 2% a. What is the expected rate at which this firm could grow? b. What might the manager do to increase the rate of growth? c. What level of risk is associated with the rate of growth found in a?...
a. What are the expected value and standard deviation for the rate of return on assets?...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
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Given the following information about a farm business: Debt-to-equity ratio 2.0 Expected return on assets 12% Expected interest rate on debt 896 Consumption rate 60% Tax rate 20% Standard deviation of return on assets 4% Standard deviation of interest rate 2% a. What is the expected rate at which this firm could grow? b. What might the manager do to increase the rate of growth? c. What level of risk is associated with the rate of growth found in a?...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
3. Nancy and Dave currently have $700,000 in assets and $260,000 in liabilities. Their average cost of debt is fixed at 7%. Their consumption and tax rates are 40% and 30%, respectively. Taxes are based on returns...
1. Explain why the costs of debt and equity are expected to increase as leverage increase? (Note: We didn't cover this directly in class, but we talked about this indirectly. Hint: It has to do with risk) 2. If the Debt-to-Asset ratio is .46, what is the Debt-to-Equity ratio? 3. Suppose a farm business indicates an average cost of farm debt of 12%, a rate-of-return on farm assets of 15%, and a debt-to-equity ratio of 1.0. What is the firm's...
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14. Use 2 steps DuPont method to calculate Rate of Return on equity for a business from the given information. Ms. Pattanaik Profit Margin (net income/sales) 25% Debt to asset ratio 30% Return on Asset 25% Asset to Equity ratio 2.0 Rate of Return on equity =
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