Blanc Corporation is planning its debt maturity mix. Management has chosen a debt-equity mix consisting of $20,000 of liabilities and $15,000 of owners' equity. The
Blanc Corporation is planning its debt maturity mix. Management has chosen a debt-equity mix consisting of $20,000 of liabilities and $15,000 of owners' equity. The yield curve is currently upward sloping: the interest rate on short-term debt is 6% and the interest rate on long-term debt is 10%. Blanc has $18,000 of current assets, anticipates EBIT of $4,000 and has a 40% tax rate.
What will Blanc's return on equity ratio be if it makes $15,000 of the liabilities short-term and $5,000 long-term?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
First lets calculate the total interest expense Shortterm debt 15000 x 6 900 Longterm debt 5000 ...
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
