Name, notes payable of $1.546,000, long-term debt of $12,000,000, and total inte

Question

Name, notes payable of $1.546,000, long-term debt of $12,000,000, and total interest expense of $1,300,000 lays 8% interest on its longterm debt, what interest rate does it pay on its notes payable? A firm has List the advantages and the disadvantages of a corporation ABC Inc. has equity multiple of 5. What is the debt ratio? The XYZ Co's return on asset (ROA) is 10%. if sales were S4 million, the debt ratio was 90%, and total liabilities were 2 million, what would be Carter's return on equity (ROE)? ABC Inc's latest EPS was SA00, its book value per share was $2000, it has 200,000 shares outstanding, and its debt ratio was 40%. How much debt was outstanding?

Explanation / Answer

1. =(1300000-12000000*8%)/1546000=22%

2. Advantages: Limited liability, ownership transfers, perpetual life, easy source of capital

Disadvantages: Double taxation, excessive tax filings, independent management

3. Equity multiplier is Total Assets/ Equity=1+Debt/Equity..Hence Debt/Equity=4

4. Return on Equity=Return on Assets*Assets/Equity=Return on Assets*1/(Equity/Total Assets)=Return on Assets*1/(1-Debt/Total Assets)=10%*1/(1-0.9)=100%

5. Equity=20*200000=4000000

Debt ratio=Debt/Assets=Debt/(Debt+Equity)

Hence, Debt=4000000/1.5=2666666.67

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