RISK ANALYSIS a. Given the following information, calculate the expected value for Firm C’s EPS…. 1 answer below »


RISK ANALYSIS

a. Ardent the aftercited counsel, weigh the expected estimate for Robust C’s EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and sA = $3.61; E(EPSB) = $4.20, and sB = $2.96.

 

 

 

 

 

 

 

0.1

0.2

0.4

0.2

0.1

Firm A: EPSA

($1.50)

$1.80

$5.10

$8.40

$11.70

Firm B: EPSB

(1.20)

1.50

4.20

6.90

9.60

Firm C: EPSC

(2.40)

1.35

5.10

8.85

12.60

b. You are ardent that σC = $4.11. Discuss the not-absolute riskiness of the three robusts’ rights.

FINANCIAL LEVERAGE EFFECTS

Firms HL and LL are particular ate for their leverage pertinencys and the concern reprimands they pay on claim. Each has $20 darling in proceeds, has $4 darling of EBIT, and is in the 40% federal-plus-state tax connect. Robust HL, notwithstanding, has a claim pertinency (D/A) of 50% and pays 12% concern on its claim, inasmuch-as LL has a 30% claim pertinency and pays singly 10% concern on its claim.

a. Weigh the reprimand of render on equity (ROE) for each robust.

b. Observing that HL has a remarkable ROE, LL’s treasurer is thinking of amelioration the claim pertinency from 30% to 60% well-balanced though that would extension LL’s concern reprimand on all claim to 15%.

Calculate the new ROE for LL.