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The following are selected financial information on Firm A and Firm B. You are asked to complete the table by methodically calculating the missing information.

You will assume that Cost of Goods Sold (COGS) is 65% of Sales and that the company uses a marginal tax rate of 35%.

​Firm A​Firm B

Revenue​$​ 3,000​$ 3,000

COGS​(Blank)​(Blank)

Gross Profit​1,050​1,050

Operating Expense. (300)​​(300)

EBIT​ 750​750

Interest Expense​(Blank)​(Blank)

EBT. ​(Blank)​(Blank)

Income Tax @35%. (Blank)​(Blank)

Net Income​$488​$472

Earnings per share. (Blank)​(Blank)

Dividends per share.​(Blank)​(Blank)

Expected Return on Equity​(Blank)​(Blank)

Estimated Share Price​(Blank)​(Blank)

Market Value of Equity​(Blank)​(Blank)

Market Value of Debt​(Blank)​(Blank)

Enterprise Value​$2,181​$2,503

Outstanding Debt​$ -​$300

Shares Outstanding. 600​300

Cost of Debt​6%​8%

Beta​ 1.40​1.70

Expected return on Market. 9%​9%

Dividend pay-out ratio​ 50%​60%

Dividend growth. ​2%​2%

Risk free​ 3%​3%

Common equity ​$600​$300

Company’s debt trading @​n/a​105

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Which firm's shareholders are wealthier? Explain why.The following are selected financial information on Firm A and Firm B. You are asked to complete the table by methodically calculating the missing information.

You will assume that Cost of Goods Sold (COGS) is 65% of Sales and that the company uses a marginal tax rate of 35%.

Firm A Firm B

Revenue $ 3,000 $ 3,000

COGS (Blank) (Blank)

Gross Profit 1,050 1,050

Operating Expenses (300) (300)

EBIT 750 750

Interest Expense (Blank) (Blank)

EBT (Blank) (Blank)

Income Tax @35% (Blank) (Blank)

Net Income $488 $472

Earnings per share (Blank) (Blank)

Dividends per share (Blank) (Blank)

Expected Return on Equity (Blank) (Blank)

Estimated Share Price (Blank) (Blank)

Market Value of Equity (Blank) (Blank)

Market Value of Debt (Blank) (Blank)

Enterprise Value $2,181 $2,503

Outstanding Debt $ - $300

Shares Outstanding 600 300

Cost of Debt 6% 8%

Beta 1.40 1.70

Expected return on Market 9% 9%

Dividend pay-out ratio 50% 60%

Dividend growth 2% 2%

Risk free 3% 3%

Common equity $600 $300

Company’s debt trading @ n/a 105

Which firm's shareholders are wealthier? Explain why.

Which firm's shareholders are wealthier? Explain why.The following are selected financial information on Firm A and Firm B. You are asked to complete the table by methodically calculating the missing information.

You will assume that Cost of Goods Sold (COGS) is 65% of Sales and that the company uses a marginal tax rate of 35%.

Firm A Firm B

Revenue $ 3,000 $ 3,000

COGS (Blank) (Blank)

Gross Profit 1,050 1,050

Operating Expenses (300) (300)

EBIT 750 750

Interest Expense (Blank) (Blank)

EBT (Blank) (Blank)

Income Tax @35% (Blank) (Blank)

Net Income $488 $472

Earnings per share (Blank) (Blank)

Dividends per share (Blank) (Blank)

Expected Return on Equity (Blank) (Blank)

Estimated Share Price (Blank) (Blank)

Market Value of Equity (Blank) (Blank)

Market Value of Debt (Blank) (Blank)

Enterprise Value $2,181 $2,503

Outstanding Debt $ - $300

Shares Outstanding 600 300

Cost of Debt 6% 8%

Beta 1.40 1.70

Expected return on Market 9% 9%

Dividend pay-out ratio 50% 60%

Dividend growth 2% 2%

Risk free 3% 3%

Common equity $600 $300

Company’s debt trading @ n/a 105

Which firm's shareholders are wealthier? Explain why.

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