Re: [ vuZs.net ] define all steps plzz and markd steps??

rigth me also this answer

On Fri, Jul 8, 2011 at 10:44 PM, Zubair Hussain <zubair@vuzs.net> wrote:

I have added few formula to clear the calculation. Your procedure is right except minor mistake in calculation.

For company A  70% leverage so equity will be 30% of 3,000,000 = 900000

EBIT (earning before interest and tax) =                              500,000

Interest (12% of 500,000) =  (60,000)

EBT    (Earning before tax) =   EBIT- Interest = (500,000-60,000)= 440,000        

Tax  (35% of EBT)         = EBT * .35 = 440,000*.35 =  154,000

Net income                       = EBT-Tax = 440000-154000=286,000

Expected ROE (=NI/Equity) = 286,000/ (900000) = 31.78%

Regards

Zubair Hussain

www.vuzs.net

On Fri, Jul 8, 2011 at 12:31 PM, fatimah hussain <furry.khi@gmail.com> wrote:

Firms A and B are identical except their use of debt and the interest rates they pay. Firm A has more debt and thus must pay a higher interest rate. 

Requirement:

Based on the data given below, how much higher or lower will be the A's ROE that of B, i.e., what is ROE_A - ROE_B?

 

Applicable to Both Firms              Firm A's Data            Firm LD's Data         

Assets Rs. 3,000,000                        Debt ratio 70%                 Debt ratio 20%

EBIT    Rs.500, 000                           Int. rate 12%                 Int. rate 10%

Tax rate  35%

 

For company A  70% leverage so equity will be 30% of 3,000,000 = 900000

EBIT =                              500,000

Interest (12% of 500,000) =  (6000)

EBT                                  494,000        

Tax  (35% of EBT)          (148200)          <------     ??

Net income                        345,800                  ??

Expected ROE (=NI/Equity) 345,800/ (900000) = 38.42%

 confusion

 some values comz HOW ?? 

 

when we need to know ROE then whats it calculation process ..... u can define from any question i jst want to know the complete process

--
--
Please visit www.vuzs.net For Current & Old Papers, Quizzes, Assignments and study material.
--
You received this message because you are subscribed to the Google
Groups "vuZs" group.
--
To post a new message on this group, send email to vuZs@googlegroups.com
--
Message Posting Rules: http://vuzs.net/faq/4795-vuzs-google-groups-basic-rules-for-posting-messages.html
--
To unsubscribe from this group, send email to vuZs+unsubscribe@googlegroups.com
--
To join this group Send blank email from your virtual university email address to
vuZs+subscribe@googlegroups.com
or visit
http://groups.google.com/group/vuZs/subscribe
---
For more information Contact vuZs Manager at info@vuzs.net

--
--
Please visit www.vuzs.net For Current & Old Papers, Quizzes, Assignments and study material.
--
You received this message because you are subscribed to the Google
Groups "vuZs" group.
--
To post a new message on this group, send email to vuZs@googlegroups.com
--
Message Posting Rules: http://vuzs.net/faq/4795-vuzs-google-groups-basic-rules-for-posting-messages.html
--
To unsubscribe from this group, send email to vuZs+unsubscribe@googlegroups.com
--
To join this group Send blank email from your virtual university email address to
vuZs+subscribe@googlegroups.com
or visit
http://groups.google.com/group/vuZs/subscribe
---
For more information Contact vuZs Manager at info@vuzs.net

--
--
Please visit www.vuzs.net For Current & Old Papers, Quizzes, Assignments and study material.
--
You received this message because you are subscribed to the Google
Groups "vuZs" group.
--
To post a new message on this group, send email to vuZs@googlegroups.com
--
Message Posting Rules: http://vuzs.net/faq/4795-vuzs-google-groups-basic-rules-for-posting-messages.html
--
To unsubscribe from this group, send email to vuZs+unsubscribe@googlegroups.com
--
To join this group Send blank email from your virtual university email address to
vuZs+subscribe@googlegroups.com
or visit
http://groups.google.com/group/vuZs/subscribe
---
For more information Contact vuZs Manager at info@vuzs.net