Question
1. According to the Rule of 72, how many years would it take for an investment to double if it grows at an annual rate
1. According to the Rule of 72, how many years would it take for an investment to double if it grows at an annual rate of 4 percent?
2. Consider the following financial for Atlas Awesome Manufacturing, Inc. and Delilah Superior Manufacturing, Inc. Both companies are in the same industry and have identical operating income of $8.4 mllion. Atlas finaces its $15 million in assets with $2million in debt (on which it pays 9 percent interest) and $13 million in equity. Delilah finaces its $15 million in assets with 12 million in debt (on which it pays 8 percent interest). Both companies pay 32 percent tax on their taxable income. Calculate the following:
A. Each firm's net income
B. The income each firm has available to pay its debtholders and stockholders (the firm's asset funders)
C. The return available to the asset funders on their investment in each company (the retrun on asset-funders' investment)
Which company offers a higher return on investment to its asset funders? Explain why this company is able to offer a higher return on investments to its asset funders.
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