Finance Question - BASIC FINANCE

FIN/370 WEEK 5 INDIVIDUAL FINANCING STRATEGY PROBLEMS

PROBLEM 3 CHAPTER 20 BASIC FINANCE

Fill in the table using the following information.

Assets required for operation: $10,000

Firm A uses only equity financing

Firm B uses 30% debt with a 6% interest rate and 70% equity

Firm C uses 50% debt with a 10% interest rate and 50% equity

Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing

Earnings before interest and taxes: $1,000

	A	B	C
Debt outstanding	$	$	$
Stockholders’ equity
Earnings before interest and taxes	300	300	300
Interest expense
Earnings before taxes
Taxes (40% of earnings)
Net earnings
Return on stockholders’ equity	%	%	%

ALL WORK MUST BE SHOWN