PART A Which of the following does not describe the impact of a firm's capital structure...
PART A
Which of the following does not describe the impact of a firm's capital structure on ROA and ROCE?
Multiple Choice
-
A highly levered firm can be advantageous to common stockholders.
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For a firm with no debt, ROCE will likely be the same as the ROA.
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For a high-debt firm experiencing a profitable year, ROCE will likely be higher than ROA if the debt was used to support operations.
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For a high-debt firm experiencing a profitable year, ROCE will likely be lower than ROA if the debt was not used to support operations.
PART B
Common value-relevant attributes for determining the value of a company include all the following except:
Multiple Choice
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Balance sheet book values.
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Free cash flows.
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Accounting earnings.
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Fair value of fixed assets.
PART C
Consider the following table of Actual earnings:
| Firm A | Firm B | Firm C | |||||||||
| Actual earnings | $ | 6,000 | $ | 14,000 | $ | 18,000 | |||||
| r | 10 | % | 8 | % | 12 | % | |||||
| BVt-1 | $ | 100,000 | $ | 150,000 | $ | 190,000 | |||||
What are the abnormal earnings for Firm B?
Multiple Choice
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$14,000
-
$1,000
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$2,000
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$12,000
Homework Answers
Answer:-
Part a- A highly levered firm can be advantageous to common stockholders.
Part b - fair value of fixed assets
Part c - abnormal earnings = bv × rate
= 150000 × 8% = 12000
Add Answer to:
PART A
Which of the following does not describe the
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