XYZ Corp. has a return on common equity (ROCE) of 40%. It has a financial leverage of40% and an after-tax net borrowing cost of 5% on $250 million of net financial obligation.a) What rate of return does XYZ Corp. earn on its operations?(2 marks)b) The firm is considering repurchasing $125 million of its stock and financing therepurchase with further borrowing at a 5% after-tax borrowing cost. What effect willthis transaction have on the firm’s return on common equity if the same level ofoperating profitability is maintained

XYZ Corp. has a return on common equity (ROCE) of 40%. It has a financial leverage of40% and an after-tax net borrowing cost of 5% on $250 million of net financial obligation.a) What rate of return does XYZ Corp. earn on its operations?

You operate in a perfect capital market in which firms and individuals can borrow or lend as much as they like at 8% p.a. You have currently invested in XYZ Ltd which is unlevered and generates a return of 14% p.a. on average. If XYZ restructured to a 50/50 mix of debt/equity, what return on their investment would equity holders require to invest?A.The return on equity will increase to 20%.B.The return on equity will be unchanged because the amount of debt raised is insufficient to substantially increase the risk of financial distress.C.The return on equity will be 11% since half the firm is financed by equity (which costs 14%) and half is financed by debt (which costs 8%).D.The return on equity is 8%.

a) To calculate the rate of return on operations, we need to use the formula for Return on Common Equity (ROCE), which is: ROCE = Return on Operations + (Return on Operations - After-tax net borrowing cost) * Financial Leverage Given that ROCE is 40%, Financial Leverage is 40% and After-tax net borrowing cost is 5%, we can rearrange the formula to solve for Return on Operations: Return on Operations = ROCE - (Return on Operations - After-tax net borrowing cost) * Financial Leverage Substituting the given values: Return on Operations = 0.40 - (Return on Operations - 0.05) * 0.40 Solving for Return on Operations, we get approximately 29.17%. b) If the firm repurchases $125 million of its stock and finances the repurchase with further borrowing at a 5% after-tax borrowing cost, the firm's financial leverage will increase. This is because financial leverage is the proportion of debt a firm uses to finance its assets, and in this case, the firm is increasing its debt. If the same level of operating profitability is maintained, the increase in financial leverage will result in a higher ROCE. This is because the firm is using more debt to finance its operations, and the cost of this debt is less than the return on its operations. Therefore, the excess return will increase the overall ROCE. However, it's important to note that while increasing financial leverage can boost ROCE, it also increases the firm's financial risk. If the firm's operating profitability declines, it may struggle to meet its debt obligations. ####

Company X operates in a retail industry funded 60% by debt, and Company Y also operates in the retail sector and is 80% financed by debt and has a beta of 0.7 Additional information The market return is 13%, and the debt of company X consists of . A bank loan of 8.5% interest per annum . 5-year GVN bonds are currently yielding at 7% . The tax rate is 28%Requireda) Determine suitable beta for company xb) Highlight the difference between systematic and unsystematic risk and the impact of beta on a company c) Calculate the cost of equity of the company xd) Calculate the weighted cost of the average of the company xe) If the company has an opportunity to invest in a project with an annual return of 13% p.a.Advise whether the company should accept the project or not?

Company A has a capital structure of $80M debt and $20M equity. This year, the company reported a net income of $17M. What is Company A's return on equity?*117.6%21.3%85.0%28.3%