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  • Chapter 12 - Example - 2 Leverage Relations

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    Haseeb Ahmed
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    This document provides two examples of calculating financial leverage ratios for firms. The first asks to calculate financial leverage given a firm's return on common equity of 21%, return on net operating assets of 18%, and after-tax borrowing cost of 5%. The second asks to calculate operating liability leverage given shareholders' equity of $480 million, net financial obligations of $89 million, and operating assets of $634 million.

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    Ch_12_Example_2

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    This document provides two examples of calculating financial leverage ratios for firms. The first asks to calculate financial leverage given a firm's return on common equity of 21%, return on net operating assets of 18%, and after-tax borrowing cost of 5%. The second asks to calculate operating liability leverage given shareholders' equity of $480 million, net financial obligations of $89 million, and operating assets of $634 million.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    5 views1 page

    Chapter 12 - Example - 2 Leverage Relations

    Uploaded by

    Haseeb Ahmed
    This document provides two examples of calculating financial leverage ratios for firms. The first asks to calculate financial leverage given a firm's return on common equity of 21%, return on net operating assets of 18%, and after-tax borrowing cost of 5%. The second asks to calculate operating liability leverage given shareholders' equity of $480 million, net financial obligations of $89 million, and operating assets of $634 million.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    CHAPTER 12 – EXAMPLE_2

    Leverage Relations

    a) A firm has a return on common equity of 21% and a


    return on net operating assets of 18%. Its after-tax
    borrowing cost is 5%. What is its financial leverage?

    b) A firm reports common shareholders’ equity of $480


    million, net financial obligations of $89 million and
    operating assets of $634 million. What is its operating
    liability leverage?

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