Samsung Electronics Ordinary Shares 8,000,000 7 Debentures 3,000,000 LG Electronics Ordinary Shares 7,500,000 8 Debentures 2,800,000 Panasonic Corporation Ordinary Shares 7,200,000 9 Debentures 2,500,000 The return on capital employed was 17 for each firm in 1993, and in 1994 it was 10 Corporation ...

The Answer is in the image, click to view ...

Samsung Electronics Ordinary Shares: 8,000,000 7% Debentures: 3,000,000 LG Electronics Ordinary Shares: 7,500,000 8% Debentures: 2,800,000 Panasonic

Fantastic news! We've Found the answer you've been seeking!

Question:

Samsung Electronics
- Ordinary Shares: ₩8,000,000
- 7% Debentures: ₩3,000,000
LG Electronics
- Ordinary Shares: ₩7,500,000
- 8% Debentures: ₩2,800,000
Panasonic Corporation
- Ordinary Shares: ¥7,200,000
- 9% Debentures: ¥2,500,000

The return on capital employed was 17% for each firm in 1993, and in 1994 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 1993 and 1994. Assume that all profits are distributed. (b) Evaluate the effects of high gearing on the financial performance and risk profile of these companies.