Brandon Corporation Currently Has Total Shareholders' Equity of $400,000 and Debt

question 104

Essay

Brandon Corporation currently has total shareholders' equity of $400,000 and debt of
$100,000.The debt has an interest rate of 6% and Brandon's tax rate is 25%.Net income for last year was
$32,000.Brandon is thinking about borrowing another $50,000 and paying out a large one-time dividend to its shareholders.
Required:
A) What is Brandon's current debt-to-equity ratio? B) What is Brandon's current ROE?
C) If Brandon borrows to pay the dividend, what would its debt-to-equity ratio be? D) If Brandon borrows to pay the dividend, what would its ROE be?
E) If you were a shareholder of Brandon, what would you want management to do? Why? F) Are there are risks to the plan?

• A) What is Brandon's current debt-to-equity ratio? B) What is Brandon's current ROE?
• C) If Brandon borrows to pay the dividend, what would its debt-to-equity ratio be? D) If Brandon borrows to pay the dividend, what would its ROE be?
• E) If you were a shareholder of Brandon, what would you want management to do? Why? F) Are there are risks to the plan?

---

Definitions:

Hypotheses

Statements or predictions that are formulated for empirical testing, representing the initial step in the scientific method.

P-value

In statistical hypothesis testing, the probability of obtaining test results at least as extreme as the results actually observed, under the assumption that the null hypothesis is correct.

Hypotheses

Proposed explanations or predictions that can be tested through research and experimentation.

Null Hypotheses

A hypothesis that suggests no significant difference or effect, typically representing a default or initial assumption for statistical testing.