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2. The Burger Hut has sales of $29 million, total assets of $43 million, and total...

2. The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?

3. Gladstone Pavers has a long-term debt ratio of 0.6 and a current ratio of 1.3. Current liabilities are $700, sales are $4,440, the profit margin is 9.5 percent, and the return on equity is 19.5 percent. How much does the firm have in net fixed assets?

4. You have just made a $1,500 contribution to your individual retirement account. Assume you earn a 12 percent rate of return and make no additional contributions. How much more will your account be worth when you retire in 25 years than it would be if you waited another 10 years before making this contribution?

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Expert Solution

Question 2

ROE = Net Income/Total Equity

Profit Margin = Net Income/Sales

11% = Net Income/$29 mil

Net Income = $3.19 mil

Total Assets = Total Equity + Total Debt

43mil = Total equity + 13mil

Total Equity = $30 mil

ROE = 3.19mil/30mil = 10.63% --> Answer

Question 3

Current Ratio = Current assets/Current liabilities

Current Assets = 1.3 * 700 = $910

Profit Margin = Net Income/Sales

9.5% = Net Income/4,440

Net Income = $421.80

ROE = Net Income/Equity

19.5% = 421.80/Equity

Equity = 421.80/19.5% = $2,163.08

Long term debt ratio = Long term debt/(Long term debt + Equity)

0.6 = Long term debt/(Long-term debt + $2,163.08)

Long-term debt = $3,244.62

Total Assets = Total Liabilities + Equity

Total Assets = Total long term debt + Current liabilities + Equity

Total Assets = 3,244.62 + 700 + 2,163.08 = $6,107.70

Net Fixed Assets = Total Assets - Current Assets = $6,107.70 - $910 = $5,197.70 --> Answer

Question 4

We need to calculate the future value of this amount $1,500 at 25th year, assuming we made this contribution today and also need to calculate the future value of this amount $1,500 at 25th year, assuming this contribution was made after 10 years.

FV = PV * (1 + r)n

When contribution is made today,

FV = 1500 * (1 + 12%)25

FV = $25,500.10

When contribution is made 10 years later,

FV = 1500 * (1 + 12%)15

FV = $8,210.35

Difference in Future values = $25,500.10 - $8,210.35 = $17,289.75 --> Answer

jeff jeffy answered 2 years ago
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