Question
Rainbow Manufacturing is planning to engage in a project to increase its profitability that will require investment of P2,000,000 from which it expects to realize
Rainbow Manufacturing is planning to engage in a project to increase its profitability that will require investment of P2,000,000 from which it expects to realize a 30% rate of return. Loans may be obtained at the interest rate of 12% per annum. Income tax rate is 35%. If Rainbow manufacturing is currently realizing a net income of P60,000 on invested capital of P500,000(divided into 25,000 shares of capital stock with par value of P20 each). Required: 1. Find the cost of borrowed capital - rate 2. Find the interest expense net of tax benefit 3. Find the rate of income from the proposed project 4. Rate of return on owner's equity 5. Earnings per share from invested capital 6. Debt to equity ratio
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