Bank Buy Inc

question 22

Essay

Bank Buy Inc. 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:

Gender Neutral

Avoiding distinctions between genders, aiming at equality and not specifying a particular gender when unnecessary.

Glass Cliff

A situation where women or minority leaders are more likely to be put into leadership roles during periods of crisis or risk, potentially setting them up for failure.

Leadership Positions

Roles or titles within an organization or group tasked with guiding, directing, or managing others.

Gender Stereotypes

Preconceived and oversimplified beliefs about characteristics, attributes, and roles typically associated with males or females.