Blue Corp Is in the Process of Acquiring Another Business

question 40

Essay

Blue Corp is in the process of acquiring another business. In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity). The two proposals being contemplated are detailed below:
Requirements
a. Calculate the estimated return on equity (ROE)under the two proposals. (ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b. Which proposal will generate the higher estimated ROE?
c. What is the primary benefit of leveraging an investment decision? What are two drawbacks to leveraging an investment decision?

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Definitions:

Unethical Practices

Actions or behaviors that go against moral principles and standards, often resulting in harm or disadvantage to others.

Explicit Support

Clear and direct assistance or endorsement provided, usually in a manner that leaves no room for doubt or ambiguity.

Unacceptable Behavior

Actions or conduct deemed inappropriate or offensive within a certain context, contrary to societal norms or organizational policies.

Values-Based Leadership

Leadership approach focusing on aligning employees' values, ethics, and standards with the goals and culture of the organization.