Boylston Inc.'s total interest bearing debt is $10,000,000 on which it pays interest at the rate...
Boylston Inc.'s total interest bearing debt is $10,000,000 on which it pays interest at the rate of 5%. Boylston's rate of return on assets is 10%. How much cash flow does leverage add to shareholders equity?
A. $500,000
B. $1,000,000
C. $(500,000) negative cash flow
D. $(1,000,000) negative cash flow.
Homework Answers
Increase in return from leverage = 10000000*10% = 1,000,000
Less: Interest = 10000000*5% = 500,000
Net cash flow = $500,000
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