Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Firm A has $20,000 in assets entirely financed with equity.

Firm B also has $20,000 in assets, financed by $10,000 in debt (with a 10 percent rate of interest) and $10,000 in equity.

Both firms sell 30,000 units at a sale price of $4.00 per unit.
The variable costs of production are $3 per unit.
Fixed production costs are $25,000.
(assume no income tax.)

a. What is the operating income (EBIT) for both firms?

b. What are the earnings after interest for each firm?

c. What is each firm's Return on Equity? (find out ROE based on earnings after interest ... assume no income tax)

Assume sales increase by 10% (to 33,000 units)

d. What are the earnings after interest for each firm with the increased sales?

e. With the increased sales, what is the percentage increase in earnings after interest for each firm?

f. Which firm had the higher increase in earnings, and why?

g. What is each firm's Return on Equity with the increased sales?

h. Why might investors prefer to invest in the firm that provides lower total earnings?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946164

Have any Question? 


Related Questions in Accounting Basics

Landscaping service pricing analysisyou own a landscaping

Landscaping Service Pricing Analysis You own a landscaping company for residential properties. Your average cost for design and implement a standard landscape change per residential property is as follows Bushes @ $130 F ...

Discussionpart 1 please respond the following question no

Discussion Part 1 please respond the following question no less then 350 words (original work, no plagiarism, 1 reference "free cash-flow valuations" please respond to the following: • Create an argument that use of the ...

Question 1based upon the material covered from the readings

Question #1 Based upon the material covered from the readings and/or videos from Week 8, highlight the three most important concepts you learned this week and how each of these concepts will help you in appreciating the ...

1 what does it mean to create a culture of honesty openness

1. What does it mean to create a "Culture of Honesty, Openness, and Assistance?" Give some examples from an organization with which you have been affiliated. (250 words) 2. Review the section Preventing Fraud-A Sumary an ...

Case - ethics and the managergo to page 130 case 3-30

CASE - Ethics and the Manager Go to page 130, Case 3-30, Ethics and the Manager. Let's discuss the questions, make value-added comments, points, and share personal experiences of unethical situations. Cristin Madsen has ...

Please see the list of stock from a virtual game that

Please see the list of stock from a virtual game that student invested during the period Sep 2016- Dec 2016. The returns are shown as well. Please use this information to write a report 2-4 pages about the project. Your ...

Kent cpa is a staff auditor participating in the audit

Kent, CPA is a staff auditor participating in the audit engagement of Fort, Inc. Based upon each of the circumstances below, indicate whether or not Kent's actions impair his independence. Explain your response for each ...

Accountingthe accepted microsoft office versions for this

Accounting The accepted Microsoft Office versions for this assignment are Microsoft Office 2013 (for PC) and Microsoft Office for Mac 2011 (for Macintosh). Students may use a more recent version if available. Select a pe ...

Internal control procedures are required for all

Internal control procedures are required for all transaction cycles within an accounting cycle. This week you are addressing the control procedures that would be the most effective in the general ledger and reporting sys ...

International accounting1 tax jurisdiction and double

INTERNATIONAL ACCOUNTING 1. Tax Jurisdiction and Double Taxation Basis for taxation come from three common bases for taxation...they are source, citizenship, and residence. (Fill in the blanks below) a. The citizenship b ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen