Universal Inc

question 94

Essay

Universal 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:
Required:
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)× (1 - tax rate)).
b.Which proposal will generate the higher estimated ROE?

---

Definitions:

Oranges In South Africa

Refers to the cultivation, production, and market dynamics of oranges within the South African agrarian economy.

Tariff

A tax imposed on imported or, less commonly, exported goods, used to regulate trade and protect domestic industries.

Import Quota

A government-imposed limit on the quantity of a certain good that can be imported into the country over a specified period.

Tax On Imports

A financial charge imposed by a government on goods imported into a country to regulate trade and raise revenue.