1)A firm has a ROA of 14%, an equity-to-debt ratio of 1

Finance Oct 27, 2020

1)A firm has a ROA of 14%, an equity-to-debt ratio of 1.25, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is _______.

2)what are the problems of calculating fixed asset depreciation for a small business.

3)Which ONE of the following situations is most likely to create an agency cost? O a. None of the answers are correct. O b. Hiring an independent consultant to study the operating efficiency of the company. O C. Giving all employees a bonus if a certain level of stock price has been achieved. O d. Compensating a manager based on company's end of the year net income. e. Foregoing a profitable/risky project to protect manager's jobs.

4)Furnaces Pty Ltd was advised by a local building inspector that one of the chimneys on its premises was unsafe and, unless it was repaired, the factory would have to be closed. Furnaces decided that it was not feasible to stop operations to repair the chimney, so they gained permission to build an alternative chimney adjacent to the old chimney, thereby allowing production to continue. They found that although the new chimney was substantially the same size and make as the old one, it was cheaper to build than it would have been to repair the old one. Also, the new chimney can better ventilate the weather, which was not available in the previous one. After the new chimney was erected, the old chimney was demolished.

Is any amount allowable as a deduction for the cost of the new chimney?( 500 WORD)

Expert Solution

Return on equity= (1- Tax)[ Return on asset+(return on assets -interest rate) debt equity ratio)

Return on equity= (1-.035)[14%+(14%-10%)1.25)

= (.65)[14+5]

= (19*.65)=12.35%

Return on equity will be 12.35%

Small business does not have adequate managerial resources for estimation of the useful life and depreciation.

When a company depreciates an asset, it is making an estimation on the useful life of that asset. Depending on which depreciation method is used, a company can be too aggressive in writing off assets or its estimate of an asset's useful life may be over-exaggerated.

3)(B) Hiring independent consultant to study the operating efficiency of the company.

Answer- Below things are necessary for the understanding of any student:

General Deductibility Rules for Repairs Student knows how to use the ITAA 1997, know how to apply the law to the Furnaces' deductibility of the commercial kitchen expenditure. Very good identification of the Furnaces' deductibility of the commercial kitchen expenditures and discussion of the issues. Majority of relevant issues identified and discussed in relation to the given scenario. The area of deduction law is correctly identified but the statement does not clearly describe the legal problem/s and conclusions that need to be addressed in relation to the given scenario. The relevant area of law in relation to the given scenario is not identified.
Identification of the case assisting in decision making in this question. The relevant legal case in relation to the Furnaces' deductibility of the chimney expenditures is clearly explained and their correct source of authority is given. Similar yet relevant legal case in relation to the Furnaces' deductibility of the chimney expenditures is clearly explained and their correct source of authority is given. Close enough yet relevant legal case in relation to the Furnaces’ deductibility of the chimney expenditures is clearly explained and their correct source of authority is given. Some identification of legal case in relation to the Furnaces’ deductibility of the chimney expenditures is explained but their correct source of authority is not given. No relevant legal cases in relation to the deductibility of the given scenario have been identified and no correct source of authority is given.
Thorough yet succinct discussion on considerations required for repairs The discussion is a clear and comprehensive analysis of the relevant legal principles in relation to the Furnaces’ deductibility of the furnace expenditures. Very good discussion and analysis of the relevant legal principles in relation to the Furnaces' deductibility of the furnace expenditures. Good discussion and analysis of the relevant legal principles in relation to the Furnaces' deductibility of the furnace expenditures. The discussion considers some of the relevant legal principles but does not apply those principles to the key facts to support logical arguments in relation to the given scenario. The discussion of the facts does not refer to any relevant capital gain legal principles in relation to the given scenario.
Thorough yet succinct discussion on occasions where expenses are not considered as repairs and therefore, no deduction is available. All relevant legal principles in relation to the Furnaces' non-deductibility of the chimney expenses is clearly explained and their correct source of authority is given. Most of the relevant legal principles in relation to the Furnaces' non-deductibility of the chimney expenses is clearly explained and their correct source of authority is given. Some of the legal principles in relation to the Furnaces' non-deductibility of the chimney expenses is clearly explained and their correct source of authority is given. Few identifications of the legal principles in relation to the Furnaces' non-deductibility of the chimney expenses is clearly explained but the correct source of authority (section of Act or relevant case) has not been cited. No relevant legal principles in relation to the given scenario have been identified.
Apply the rules and cases above and provide conclusion on deductibility of expenses. Student knows how to use the ITAA 1997 in relation to the Furnaces' deductibility of the chimney expenditures, and know how to apply the law in a real scenario. Very good identification of the consequences in relation to the Furnaces' deductibility of the chimney expenditures and discussion of the issues. Majority of relevant issues identified and discussed in relation to the given scenario. The area of law in relation to the Furnaces’ deductibility of the chimney expenditures is correctly identified but the statement does not clearly describe the legal problem/s and conclusions that need to be addressed. The relevant area of law in relation to the given scenario is not identified.

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