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Attempts: Keep the Highest: /5 3. Problem 13.05 Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE

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Answer #1

a.ROIC = EBIT(1-T)/Capital

LL = 3.15 million(1-40%)/21 million = 9%

HL = 3.15 million(1-40%)/21 million = 9%

b.Return on Equity = Income for Equity/Equity Funds

LL = (3.15 million – 0.378)(1-40%)/16.8

= 9.9%

HL = (3.15 – 1.386)(1-40%)/8.4

= 12.6%

c.ROE = (3.15 – 1.89)(1-40%)/8.4

= 9%

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