Answered step by step
Verified Expert Solution
Question
1 Approved Answer
L'Oral S.A. Ordinary Shares: 1,000,000 8% Debentures: 200,000 Este Lauder Companies Inc. Ordinary Shares: $900,000 10% Debentures: $300,000 Shiseido Company Ordinary Shares: 1,100,000 12% Debentures:
- L'Oréal S.A.
- Ordinary Shares: €1,000,000
- 8% Debentures: €200,000
- Estée Lauder Companies Inc.
- Ordinary Shares: $900,000
- 10% Debentures: $300,000
- Shiseido Company
- Ordinary Shares: ¥1,100,000
- 12% Debentures: ¥400,000
The return on capital employed was 17% for each firm in 2013, and in 2014 it was 10%. Corporation tax in both years was assumed to be 43%, and debenture interest is an allowable expense against corporation tax.
(a) Calculate the percentage return on the shareholders' capital for each company for 2013 and 2014. Assume that all profits are distributed. (b) Evaluate the effects of high gearing on the financial performance and risk profile of these companies.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
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