three pages of essay about my life
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In a previous assignment you began working on the construction of 10 Strategic Points. These points will be used when developing your Prospectus and
November 23, 2020

effect leverage firms earnings

The Effect of Leverage on Firm Earnings                                                      
                                                           
A firm needs $100 to start and has the following expectations:                                                   
                                                           
                                                           
Sales $200                                                        
Expenses $185                                                        
Tax rate  33% of earnings                                                        
                                                           
                                                           
a. What are earnings if the firm owners invest the $100 thus utilizing no financial leverage? Tax and net earnings values should be rounded to 2 decimal places.                              
                                                           
b. If the firm borrows (utilizes financial leverage) $40 of the $100 at an interest rate of 10%, what are the firm’s net earnings? Tax and net earnings values should be rounded to 2 decimal places.                        
                                                           
c. What is the return on equity when financial leverage is and is not utilized? Why do the returns differ? ROE results should be shown with 2 decimal places.                                
                                                           
d. If expenses increase to $194, what will be the new return on equity values for each scenario? ROE results should be shown with 2 decimal places.                                
                                                           
e. Did the returns decline more when financial leverage was or was not utilized?                                                
                                                           
f. How does the use of financial leverage effect a firm’s earnings?  When is using financial leverage beneficial?  When is it disadvantageous?                                  
                                                           

 

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