0 The relationship between financial leverage and profitability Pelican Paper Inc. and Timberland Forest Increivals in the mandature of craft papers. Some financial statement values for each company follow me them in a ratio wysis that compares the firms financial leverage and profitability a Calculate the following debt and coverage ratios for the two companies Discuss their financial risk and ability to cover the costs in relation to each other (1) Debit ratio (2) Times interesteamed b. Calculate the following profitability ratios for the two compares Discuss their profitability relative to each other (1) Operating profit margin 2) et profit margin (3) Return on total assets (4) Retum on common equity c. In what way has the larger debut of Timberland Forest made it more profitable than Pelican Paper What are the risks that Timberland's investors undertake when they choose to purchase to stock tead of Peicari? a. The debt ratio for Pelicanis %. Round to one decimal place) The debt ratio for Timberland is Round to one decimal place) The times interest earned ratio for Pelicans Round to one decimal place) The times interesteamed ratio for Timberland is found to one decimal place) Discuss their financial risk and ability to cover the costs in relation to each other (Select the answers that ply) a. The debt ratio for Pelican is % (Round to one decimal place.) The debt ratio for Timberland is % (Round to one decimal place.) The times interest earned ratio for Pelican is I (Round to one decimal place) The times interest earned ratio for Timberland is D. (Round to one decimal place.) Discuss their financial risk and ability to cover the costs in relation to each other. (Select all the answers that apply.) A Pelica has a much higher degree of financial leverage then does med. As a result Page will be more causing the common stock owners to face greates B. Pelican's camings will be more volate. This additional is supported by the significantly lower times we hoof Polcan Timberland cance a very weet income to cover its interest expense c. Timberland's earings will be more volatile. This additional risk is supported by the significantly lower times interest and ratio of Timberland Pelican can face a very large reduction in the income and be able to cover its interest expense OD. Timberland has a much higher degree of financial leverage than does Pelican As a result Timberland's camins will be more volte causing the common stock owerstone b. The operating profit margin for Pelican is %. (Round to one decimal place.) The operating profit margin for Timberland is 3%. (Round to one decimal place.) The net profit margin for Pelican is I%, (Round to one decimal place.) The net profit margin for Timberland is %. (Round to one decimal place.) The return on total assets for Pelican is %. (Round to one decimal place.) The return on total assets for Timberland is %. (Round to one decimal place.) The return on common equity for Pelican is l%. (Round to one decimal place.) The return on common equity for Timberland is (%. (Round to one decimal place.) Discuss their profitability relative to each other. (Select all the answers that apply.) A. Timberland is more profitable than Pelican as shown by the higher net profit margin and return on assets. B. The return on equity for Pelican is higher than that of Timberland. C. The return on equity for Timberland is higher than that of Pelican D. Pelican is more profitable than Timberland as shown by the higher net profit margin and return on assets c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberlands vestors undertake when they choose to purchase its lock instead of Pelican's? Select the best answer below) O A. The lower profits of Timberland are due to the fact that interest expense is deducted from EBIT Timberland has 3540,000 of interest pense to Pelicans 10.000 Even after the last the interest tax deduction Timberland's profits are less than Pelican's by $211.200 OB. Since Timberland has a higher relative amount of debt, the stockholders equity is proportionally reduced resulting in the higher room on equity than that obtained by Pesca The ROE brings with higher levels of financial risk for Timberland equity holders the best answer below) O A. The loweprofits of Timberland are due to the fact that interest espois deducted from EBIT Tiradas 540,000 of interest experto Pics 00.000 Even after the tas held for the rest tax deduction Timberland profits are less than Pelicans by $211.200 OB. Since Timberland has a higher relative amount of debt, the stockholders'y is optionally reduced in the higher retom on equity than that obtained by Pelica. The ROE rings with the levels of financial risk for Timberland equity holders OC. Even though Pelican is more profitable higher net profit mor Timberland has a higher ROE Pelican due to the additional financial leverage risk OD. All of the above age and profitability Pelican Paner. Inc. and Timberland Forest Inc. are rivals in the manufacture of craft papers. Some financial statement values for firms' finar e ratios for 1 Data Table - X for the two erland Fore o purchase its stock ir nd to one (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Item Pelican Paper, Inc. Timberland Forest, Inc. Total assets $10,800,000 $10,800,000 Total equity (all common) 9.900.000 5,400,000 Total debt 900,000 5,400,000 Annual interest 90,000 540,000 Total sales 22,000,000 22,000,000 EBIT 5,500,000 5,500,000 Earnings available for common stockholders 3,247,200 3,036,000 und to one (R and is ver the cos Print Done