Question

In: Finance

Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of...

Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of $163,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%. The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change in response to the change in the capital structure? Select the correct answer. a. 3.27% b. 4.47% c. 4.17% d. 3.87% e. 3.57%

Solutions

Expert Solution


Related Solutions

Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of...
Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000. The debt-to-total-assets ratio was 25%, the interest rate on the debt was 8.2%, and the firm's tax rate was 38%. The new CFO wants to see how the ROE would have been affected if the firm had used a 35% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain...
Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of...
Last year Swensen Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 25%. The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain...
9. Last year Russell Corp. had sales of $303,225, operating costs of $267,500, and year-end assets...
9. Last year Russell Corp. had sales of $303,225, operating costs of $267,500, and year-end assets of $195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%. The new CFO wants to see how the ROE would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both...
Last year Hamdi Corp. had sales of $500,000, operating costs of $450,000, and year-end assets (which...
Last year Hamdi Corp. had sales of $500,000, operating costs of $450,000, and year-end assets (which is equal to its total invested capital) of $385,000. The debt-to-total-capital ratio was 17%, the interest rate on the debt was 7.5%, and the firm's tax rate was 35%. The new CFO wants to see how the ROE would have been affected if the firm had used a 50% debt-to-total-capital ratio. Assume that sales, operating costs, total assets, total invested capital, and the tax...
Last year a company had sales of $800,000, operating costs of 70%, and year-end assets of...
Last year a company had sales of $800,000, operating costs of 70%, and year-end assets of $1,500,000. The debt-to-total-assets ratio was 20%, the interest rate on the debt was 10.00%, and the tax rate was 21%. The new CFO wants to see how the ROE would have been affected if the firm had used a 30% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant....
Last year Meyer Corp had $415,000 of assets, $403,000 of sales, $28,500 of net income, and...
Last year Meyer Corp had $415,000 of assets, $403,000 of sales, $28,500 of net income, and a debt-to-total-capital ratio of 39%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total invested capital to $254,000. Sales, costs, and net income would not be affected, and the firm would maintain the same % capital structure but with less total debt. By how much would the reduction...
At the end of last year, Bantern Corp. reported sales per shareof $20.54. Sales are...
At the end of last year, Bantern Corp. reported sales per share of $20.54. Sales are expected to grow at a rate of 5% per year for the forseeable future. The company’s profit margin has remained steady at 18% for the last several years. Analysts expect that Bantern will have a return on equity of 16% for the forseeable future.What is Bantern’s retention rate?What is Bantern’s estimated EPS for the next year?What is Bantern’s free cash flow to equity for...
Rio Corp had sales last year of $75 million. Analysts expect sales will grow 30% in...
Rio Corp had sales last year of $75 million. Analysts expect sales will grow 30% in year 1 and 20% in year 2. Operating profit margin is 25%. Capex is 30% of annual sales. Depreciation expense is 70% of capex. Net Working Capital is 40% of sales. The WACC is 10%. The tax rate is 25%. Analysts expect a constant 4% per year growth rate in FCFF after year 3. Excess cash is $150 million, and Rio has $75 million...
Last year Gray Corp. had net sales of $325,000 and a net incomeof $19,000, and...
Last year Gray Corp. had net sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 45.0%. The firm uses only debt and common equity as financing. Based on the DuPont equation, what was the ROE?
a. Forma Font Foundry had sales last year of $901 with related costs of $825. (All...
a. Forma Font Foundry had sales last year of $901 with related costs of $825. (All amounts are in thousands.) Assets total $1000. Current liabilities are $375, long-term debt is $300, and owners' equity is $325. Next years' sales are expected to be 132 times last year. Ignoring taxes, depreciation, and interest, what is next year's owners' equity? Assume one-half of profits are distributed as dividends. b. Forma Font Foundry had sales last year of $1,000 with related costs of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT