EBK CFIN
EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 1, Problem 8PROB
Summary Introduction

To determine: how stockholders of a corporation would react if president of the firm used more debt to finance the assets of the firm

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You work for the CEO of a new company that plans to manufacture and sell a new product, a watch that has an embedded TV set and a magnifying glass crystal. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is P400,000. Other data for the firm are shown below. How much higher or lower will the firm's expected ROE be if it uses some debt rather than all equity, i.e., what is ROEL − ROEU?
Which areas of a financial statement do you think outside investors care more about when performing a financial statement analysis? In other words, where in the financial statements should you spend the most time researching if you were planning a multi-million dollar investment into a public company? Why would you focus so much on that area?
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