8: Duffert Industries has total assets of $1,020,000 and total current liabilities (consisting only of accounts payable and accruals) of $110,000. Duffert finances using only long-term debt and common equity. The interest rate on its debt is 8% and its tax rate is 25%. The firm’s basic earning power ratio is 13% and its debt-to-capital ratio [Long-term debt/(Long-term debt + Common Equity)] is 40%. What are Duffert’s ROE and ROIC? Do not round your intermediate calculations.
9- Last year Hamdi Corp. had sales of $500,000, operating costs of $450,000, and year-end assets (which is equal to its total invested capital) of $370,000. The debt-to-total-capital ratio was 17%, the interest rate on the debt was 7.5%, and the firm’s tax rate was 25%. The new CFO wants to see how the ROE would have been affected if the firm had used a 50% debt-to-total-capital ratio. Assume that sales, operating costs, total assets, total invested capital, and the tax rate would not be affected, but the interest rate would rise to 8.0%. By how much would the ROE change in response to the change in the capital structure? Do not round your intermediate calculations.
17- Datta Computer Systems is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.Year 0 1 2 3
Cash flows -$1,090 $490 $510 $530