(Solution) - Cathay Glass Company s summarized statement of financial position is as -(2025 Original AI-Free Solution)

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Cathay Glass Company's summarized statement of financial position is as follows

The interest rate on the liabilities is 7% and the income tax rate is 35%. There are no preferred shares, and net earnings for the year are $13,650.

Required:
a. What is the company's after-tax cost of debt?
b. Calculate the ROE and ROA for Cathay Glass.
c. Explain what causes the ROE to be equal to the ROA.
d. How could Cathay Glass increase its ROE?
e. Calculate the earnings before interest and taxes.
f. Assume that the interest rate is now 9% and that the income tax rate remains at 35%. Calculate the net earnings, ROA, and ROE for Cathay Glass.
g. Compare the ROE in parts "b" and "f" and explain why there is a difference.