Do The Assigned Problems Using Summer Peebles Inc's C 582294

Question

Do The Assigned Problems Using Summer Peebles Incs Condensed 2014 F Do the assigned problems using Summer Peebles, Inc.’s condensed 2014 financial data below: Assets Current Assets $250,000.00 Noncurrent Assets $1,750,000.00 Total Assets $2,000,000.00 Liabilities and Equity Current Liabilities $200,000.00 Noncurrent Liabilities (8% Bonds) $675,000.00 Common Stockholders' Equity $1,125,000.00 Total Liabilities and Equity $2,000,000.00 Additional Information: Net income for 2014 is $157,500. Income tax rate is 50%. Amounts for total assets and shareholders' equity are the same for 2013 and 2014. All assets and current liabilities are considered to be operating. Required: Determine whether leverage (from long-term debt) benefits Rose's shareholders. (Hint: Examine ROCE with and without leverage.) Compute the NOPAT and RNOA (use ending NOA). Demonstrate the favorable effect of leverage given the disaggregation of ROCE and your answer to part (B). Your submission should: Be 1-2 pages for the written portion. Include the Excel spreadsheet with computations. Clearly separate your responses so your instructor knows the problems you are answering. Follow the CSU-Global Guide to Writing and APA Requirements (Links to an external site.)Links to an external site. .

Dr. Jack HW Helper · Accepted Answer

Introduction Analyzing the impact of financial leverage on shareholder value is a core aspect of financial management. By examining key performance metrics such as Return on Capital Employed (ROCE), Net Operating Profit After Taxes (NOPAT), and Return on Net Operating Assets (RNOA), investors and managers can assess whether the company's use of debt enhances or diminishes shareholder wealth. This paper aims to evaluate whether leveraging long-term debt benefits Rose's shareholders by calculating these metrics based on Summer Peebles Inc.’s 2014 financial data and interpreting the results. Financial Data Summary and Initial Calculations The provided data indicates that Summer Peebles Inc. had total assets of $2,000,000, with current assets of $250,000 and noncurrent assets of $1,750,000. The liabilities include current liabilities of $200,000 and noncurrent liabilities (8% bonds) totaling $675,000, alongside shareholders' equity of $1,125,000. The net income for 2014 was $157,500, and the corporate tax rate was 50%. My first task involved evaluating the company's leverage effects by calculating ROCE with and without the influence of debt. Calculating Operating Income (EBIT) begins with net income, adjusting for taxes: $$ \text{EBIT} = \frac{\text{Net Income}}{1 - \text{Tax Rate}} = \frac{157,500}{0.5} = 315,000 $$ This EBIT figure represents pretax earnings before interest expenses are deducted. Next, we determine the interest expense on the bonds: $$ \text{Interest} = 8\% \times 675,000 = 54,000 $$ Subtracting interest from EBIT provides Earnings Before Taxes (EBT): $$ \text{EBT} = 315,000 - 54,000 = 261,000 $$ However, for the calculation of NOPAT and RNOA, we focus on EBIT and operating assets, excluding financing effects. ROCE with leverage: $$ \text{ROCE} = \frac{\text{EBIT} \times (1 - \text{Tax Rate})}{\text{Net Operating Assets (NOA)}} $$ Since all assets are operating, NOA equals total assets: $$ \text{NOA} = 2,000,000 $$ Adjusted NOPAT: \[ \text{NOPAT} = \t

Do The Assigned Problems Using Summer Peebles Inc's C 582294

Do The Assigned Problems Using Summer Peebles Incs Condensed 2014 F

Paper For Above instruction

Introduction

Financial Data Summary and Initial Calculations

Impact of Leverage on Shareholder Value

Conclusion

References