Airplane Company has a cost-plus-fixed fee contract with the air force to build jets. The government will buy any additional equipment that it needs on a justified cost-savings basis.
The incremental tax rate for the company is 40%. The company has computed the following labor savings for a new equipment that costs $18334:
Period 1: Before Tax $10,000 / After tax $6,000
Period 2: Before Tax $10,000 / After tax $6,000
The company has an after-tax time value of money of 6% and the federal government has a before-tax time value of money of 5%. Should the equipment be purchased?
A COMPANY-NO; GOVT-YES
B INDETERMINATE
C COMPANY-YES; GOVT-NO
D COMPANY-YES; GOVT-YES
E COMPANY-NO; GOVT-NO
Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by equity.
A 23.76%; $2.38
B 22%; $2.2
C 29.7%; $2.97
D 25.08%; $2.51
E 33%; $3.3
Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by debt.
A 22%; $2.2
B 23.76%; $2.38
C 33%; $3.3
D 29.7%; $2.97
E 25.08%; $2.51
Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by equity and debt equally.
A 25.08%; $2.51
B 22%; $2.2
C 29.7%; $2.97
D 33%; $3.3
E 23.76%; $2.38