Leverage is the concept of financing an agribusiness through the use of long-term debt instead of...
Leverage is the concept of financing an agribusiness through the use of long-term debt instead of equity capital so the agribusiness can maximize the amount of capital or assets it has at its disposal. True or False
Homework Answers
True
It is defined as the use of borrowed capital for expecting the profit incurred which is greater than the payable interest as well.
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Leverage is the concept of financing an agribusiness through the
use of long-term debt instead of...
10. The effect of financial leverage on ROE Companies that use debt in their capital structure...
10. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Water and Power Co. is a small company and is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be...
1. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be usin...
1. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Newtown Propane is a small company and is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE...
Research and then discuss the implications of financing through debt as they compare to financing through...
Research and then discuss the implications of financing through debt as they compare to financing through equity. What are the pros and cons of each method? Which method would you use to raise capital for your business? Using the 2017 Annual Report information provided for Amazon and Target, review and compare the debt to equity ratios, and any additional notes/disclosures relative to debt and equity financing for both companies. Do you believe that each company has made the best decisions...
Companies that use debt in their capital structure are said to be using financial leverage. Using...
Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear Consider the following case: Wizard Co. is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 30%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before...
Companies that use debt in their capital structure are said to be using financial leverage. Using...
Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Flowers by Irene Inc. is a small company and is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project...
Aa Aa 12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a fir...
Aa Aa 12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term...
Debt (or leverage) management ratios Companies have the opportunity to use varying amounts of different sources...
Debt (or leverage) management ratios Companies have the opportunity to use varying amounts of different sources of financing, including internal and external sources, to acquire their assets, debt (borrowed) funds, and equity funds. Which of the following is considered a financially leveraged firm? A company that uses only equity to finance its assets A company that uses debt to finance some of its assets Which of the following is true about the leveraging effect? Using leverage reduces a firm’s potential...
13. Short-term versus long-term financing Generally speaking, short-term debt is riskier than long-term debt, but it...
13. Short-term versus long-term financing Generally speaking, short-term debt is riskier than long-term debt, but it also has some advantages. In the following table, identify which type of funding (short-term debt or long-term debt) is being described in each case. Short-term Debt Long-term Debt This loan has more covenants that restrict the firm's actions. This loan is more flexible and can be used to adapt to changing market conditions. The lender will insist on a more thorough financial examination before...
The Smathers Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term...
The Smathers Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .36 and a current ratio of 1.34. Current liabilities are $2,430, sales are $10,570, profit margin is 10 percent, and ROE is 15 percent. What is the amount of the firm’s current assets? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current assets $ What is the amount of the firm’s net income?...
An investment amount of $10M has to be raised through equity financing and debt financing. The...
An investment amount of $10M has to be raised through equity
financing and debt financing. The required debt ratio is 0.40 and
the company tax rate is 35%.
a) The current market price of the company’s common stock is $50
and the current dividend is $5
and the dividend is expected to grow at 5% annual rate. The
floating cost of issuing a common stock is 10%. Preferred stocks of
$100 par value with 10% fixed annual dividend can also...
Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear Consider the following case: Wizard Co. is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 30%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before...
Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Flowers by Irene Inc. is a small company and is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project...
Aa Aa 12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term...
13. Short-term versus long-term financing Generally speaking, short-term debt is riskier than long-term debt, but it also has some advantages. In the following table, identify which type of funding (short-term debt or long-term debt) is being described in each case. Short-term Debt Long-term Debt This loan has more covenants that restrict the firm's actions. This loan is more flexible and can be used to adapt to changing market conditions. The lender will insist on a more thorough financial examination before...
An investment amount of $10M has to be raised through equity
financing and debt financing. The required debt ratio is 0.40 and
the company tax rate is 35%.
a) The current market price of the company’s common stock is $50
and the current dividend is $5
and the dividend is expected to grow at 5% annual rate. The
floating cost of issuing a common stock is 10%. Preferred stocks of
$100 par value with 10% fixed annual dividend can also...
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