Rate of Return on the Stockholders’ Investment Assignment
February 24th, 2020
Fill in the table using the following information.
Assets required for operation: $3,400
Case A—firm uses only equity financing
Case B—firm uses 40% debt with an 8% interest rate and 60% equity
Case C—firm uses 50% debt with a 10% interest rate and 50% equity
If your answer is zero, enter “0”. Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place.
| A | B | C | ||||
| Debt outstanding | $ | $ | $ | |||
| Stockholders’ equity | $ | $ | $ | |||
| Earnings before interest and taxes | $544.00 | $544.00 | $544.00 | |||
| Interest expense | $ | $ | $ | |||
| Earnings before taxes | $ | $ | $ | |||
| Taxes (40% of earnings) | $ | $ | $ | |||
| Net earnings | $ | $ | $ | |||
| Return on stockholders’ equity | % | % | % | |||
What happens to the rate of return on the stockholders’ investment as the amount of debt increases?
The rate of return on the stockholders’ investment -Select-increases decreases does not change as the amount of debt increases. Get Finance homework help today
