Question
Answer the following questions based on the information in the table. The tax rate is 40 percent and all dollars are in millions. For simplicity,
Answer the following questions based on the information in the table. The tax rate is 40 percent and all dollars are in millions. For simplicity, assume that the companies have no other liabilities other than the debt shown next.
|
| Atlantic Corp. | Pacific Corp. |
|---|---|---|
| Earnings before interest and taxes | $450 | $ 470 |
| Debt (at 8% interest) | $290 | $1,490 |
| Equity | $910 | $ 370 |
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Calculate each companys ROE, ROA, and ROIC.
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Why is Pacifics ROE so much higher than Atlantics? Does this mean Pacific is a better company? Why or why not?
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Why is Atlantics ROA higher than Pacifics? What does this tell you about the two companies?
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How do the two companies ROICs compare? What does this suggest about the two companies?
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Basic Finance An Introduction to Financial Institutions Investments and Management
Authors: Herbert B. Mayo
10th edition
1111820635, 978-1111820633
