FIN/370 WEEK 5 INDIVIDUAL FINANCING STRATEGY PROBLEMS
PROBLEM 3 CHAPTER 20 BASIC FINANCE
Fill in the table using the following information.
Assets required for operation: $10,000
Firm A uses only equity financing
Firm B uses 30% debt with a 6% interest rate and 70% equity
Firm C uses 50% debt with a 10% interest rate and 50% equity
Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing
Earnings before interest and taxes: $1,000
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FIN/370 WEEK 5 INDIVIDUAL FINANCING STRATEGY PROBLEMS PROBLEM 3 CHAPTER 20 BASIC FINANCE Fill in the table using the following information. Assets required for operation: $10,000 Firm A uses only equity financing Firm B uses 30% debt with a 6% interest rate and 70% equity Firm C uses 50% debt with a 10% interest rate and 50% equity Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing Earnings before interest and taxes: $1,000 ABCDebt outstanding $$$Stockholders’ equityEarnings before interest and taxes300300300Interest expenseEarnings before taxesTaxes (40% of earnings)Net earningsReturn on stockholders’ equity%%%ALL WORK MUST BE SHOWN
FIN/370 WEEK 5 INDIVIDUAL FINANCING STRATEGY PROBLEMS PROBLEM 3 CHAPTER 20 BASIC FINANCE Fill in the table using the following information. Assets required for operation: $10,000 Firm A uses only equity financing Firm B uses 30% debt with a 6% interest rate and 70% equity Firm C uses 50% debt with a 10% interest rate and 50% equity Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing Earnings before interest and taxes: $1,000 A B C Debt outstanding $ $ $ Stockholders’ equity Earnings before interest and taxes 300 300 300 Interest expense Earnings before taxes Taxes (40% of earnings) Net earnings Return on stockholders’ equity % % % ALL WORK MUST BE SHOWN