(a) Last year A Corp and $195,000 of assets, $18,775 of net income and a debt-to-total-assets...

(a) Last year A Corp and $195,000 of assets, $18,775 of net income and a debt-to-total-assets ration of 32%. Now suppose the new CEO convinces the president to increase the debt ratio to $48. Sales and total assets will not be affected but interest expenses would increase. However, the CFO believes tat better cost controls would be sufficient to offset the high interest expense, thus keep net income unchanged. By how much would the change in capital in the capital structure improve the ROE?

(b) Last year A Corp had sales of $315,000 and a net income of $17,832 and its year-end assets were $210,000. The firms total=debt-to-assets ratio was 42.5%. Based on the DuPont equation, what was A Corps ROE?

ROE= (NI/Sales) x (Sales/Total Assets) x (Total Assets/Common Equity)

Solutions

Expert Solution

jeff jeffy answered 3 hours ago

Next > < Previous

Related Solutions

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...

Company had $25,000,000 in sales last year. The company's net income was $875,000. Its total assets...

Company had $25,000,000 in sales last year. The company's net income was $875,000. Its total assets equal $8,000,000. The company's ROE was 16%. The company is financed entirely with debt and common equity. What is the company's debt ratio? A. 31.6% B. 3.5% C. 10.9% D. 14.6% E. 64.4%

Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income...

Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income of $121,000. a. What is its ROA? (Do not round intermediate calculations. Round the final answer to 1 decimal place.) Return on assets ?% b. What is the return on shareholders’ equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Return on equity ?% c. If the firm has an asset turnover ratio of 3.00 times, what is the...

Barrett, Inc., has a total debt ratio of .64, total debt of$324,000, and net income...

Barrett, Inc., has a total debt ratio of .64, total debt of $324,000, and net income of $40,500.What is the company’s return on equity?

For each transaction below, write the net effect on Current Assets (CA), Total Assets, Net Income...

For each transaction below, write the net effect on Current Assets (CA), Total Assets, Net Income Before Taxes (NI pretax), Cash flows from operating activities (CFO), and Cash flows from investing activities (CFI). Write only the effect for the current period. Assume the company is a merchandising firm. If the net effect is negative, include a negative sign. If no effect, write 0. For CFO and CFI, positive net inflows are positive, net cash outflows are negative. For classifying interest...

Holding assets constant, when debt decreases Net income increases and Stockholders' equity declines Net income and...

Holding assets constant, when debt decreases Net income increases and Stockholders' equity declines Net income and Stockholders' equity decline Net income declines and Stockholders' equity increases Cannot be determined from the information provided Net income and Stockholders' equity increase

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $195,000 after income taxes....

Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $195,000 after income taxes. Capital employed equaled $2.9 million. Brewster is 45 percent equity and 55 percent 10-year bonds paying 6 percent interest. Brewster’s marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 13-point premium above the 5 percent rate on long-term Treasury bonds. Jonathan Brewster’s aunts, Abby and Martha, have just retired, and Brewster is the new CEO...

My company had net income last year of $40, additions to retained earnings of $10, total...

My company had net income last year of $40, additions to retained earnings of $10, total assets of $319, and total debt of $250. Assuming I can’t use any external financing, what is the fastest I could grow my company while maintaining a constant dividend payout rate? Enter your answer as a percent. That is, input 5.14 instead of 0.05137 (If necessary round to nearest hundredth of a percent.)

Wilberton’s has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and...

Wilberton’s has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. If inventory is $173,900, what is the current ratio? Show your calculations! A. 1.18 B. 0.52 C. 2.01 D. 1.94 2. NDG is a firm financed with 45 percent debt and 55 percent equity. What is the equity multiplier? Show your calculations! 100% 55% 45% 1.82 3. A firm’s total current liabilities increased from 200 to 220 within a year....

Cisco Systems has total assets of $35.841 billion, total debt of $9.112 billion, and net sales...

Cisco Systems has total assets of $35.841 billion, total debt of $9.112 billion, and net sales of $22.835 billion. Its net profit margin for the year is 20 percent, while the operating profit margin is 30 percent. What are Cisco’s net income, EBIT ROA, ROA, and ROE? (Enter amount in billion. Round net income to 3 decimal places, e.g. 25.335. Round EBIT ROA, ROA and ROE to 1 decimal place, e.g.12.2%.) Net income $ billion EBIT ROA % ROA %...

Subjects