Question
A firm only uses debt and common stock to finance its operation. Its capital structure is 30% debt and 70% Equity. It reports NI of
A firm only uses debt and common stock to finance its operation. Its capital structure is 30% debt and 70% Equity. It reports NI of $1.5 million and interest expense of $300,000. A firm's tax rate is 25%. Given ROA of 12%, what is its BEP?
18.40%
15.56%
25.55%
17.78% (this is incorrect)
Which of the following statements is/are INCORRECT?
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High current ratio may also indicate the firm has too much cash and A/R and these liquid assets generally provide low returns.
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Suppose two firms have identical operating income, a firm uses more debt which will lead to relatively lower profit margin.
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Other things being equal, the higher total debt to the total capital ratio, the lower TIE ratio will be.
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BEP reflects the earning power of a firms asset after considering the effects of its debt.
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Both a and c are incorrect statements. (this is incorrect)
A firm has $500,000 interest- bearing debt with annual interest rate of 10%. In addition, a firm also has $700,000 common stock on its balance sheet. A firm's financing is only dependent on debt in common stock. The annual sale of $3 million and tax rate of 10%. The profit margin is 8%. What is its TIE?
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5.5x
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7.4x (this is incorrect)
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6.8x
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9.0x
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