Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Samsung Electronics Ordinary Shares: 10,000,000 7% Debentures: 4,000,000 LG Electronics Ordinary Shares: 9,500,000 8% Debentures: 3,800,000 Panasonic Corporation Ordinary Shares: 9,200,000 9% Debentures: 3,500,000 The

  • Samsung Electronics
    • Ordinary Shares: ₩10,000,000
    • 7% Debentures: ₩4,000,000
  • LG Electronics
    • Ordinary Shares: ₩9,500,000
    • 8% Debentures: ₩3,800,000
  • Panasonic Corporation
    • Ordinary Shares: ¥9,200,000
    • 9% Debentures: ¥3,500,000

The return on capital employed was 17% for each firm in 1983, and in 1984 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 1983 and 1984. 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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamental Accounting Principles

Authors: John J Wild, Ken Shaw

24th edition

1259916960, 978-1259916960

More Books

Students also viewed these Accounting questions