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Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Year 1 Accounts payable 484 424...

Windswept Woodworks, Inc.
Input Data
(millions of dollars)
		Year 2			Year 1
Accounts payable		484			424
Accounts receivable		1,328			870
Accumulated depreciation		6,794			6,672
Cash & equivalents		272			168
Common stock		1,232			1,160
Cost of goods sold		1,500			n.a.
Depreciation expense		?			n.a.
Common stock dividends paid		?			n.a.
Interest expense		140			n.a.
Inventory		1,062			1,066
Addition to retained earnings		602			n.a.
Long-term debt		860			776
Notes payable		230			380
Gross plant & equipment		10,260			10,000
Retained earnings		3,110			2,516
Sales		3,018			n.a.
Other current liabilities		116			96
Tax rate		34	%		n.a.
Market price per share – year end	$	19.80		$	17.50
Number of shares outstanding		500	million		500	million

Net profit = 828.96

a. Calculate Windswept Woodworks’ return on equity for year 2. (Round your answer to 2 decimal places.)

ROE

Calculate the following items for Windswept Woodworks for year 2. (Round your answers to 2 decimal places.)

b. Profit margin

c. Tax burden ratio

d. Interest burden ratio

e. Asset turnover ratio

f. Leverage ratio

Expert Solution

a.

Calculate WWs’ return on equity for year 2:

ROE = Net income / Shareholders’ equity

= $828.96 / ($4,944^*+$3,676^**)

= $828.96 / $8620

= 9.62%

Shareholdrs’ equity = Common stock + Retained earnings + add. Retained earnings

*

Year 2: = $1,232+$3,110+$602

= $4,944

**

Year 1: = $1,160+$2516+$0

= $3,676

Calculate the following items for W W for year 2:

b.

Profit margin = Net income / Sales

= $828.96 / $3,018

= 27.47%

c.

Tax burden ratio = (Net Income / Earnings Before Taxes)

= $828.96 / [$828.96 / (1-0.34)]

= $828.96 / $1,256

= 66%

d.

Interest Burden = (Earnings Before Taxes / Earnings Before Interest and Taxes)

= $1,256 / ($1,256 + $140)

= $1,256 / $1,396

= 89.97%

e.

Assets turnover ratio = Net sales / average total assets

= $3,018 / ($ 6,128 + $5,432)

= $3,018 / $11,560

= 26.11%

f.

Leverage ratio = Debt / Equity

= ($860 + $116) / [($1,232+$1,160)/2]

= $976 + $1196

= 81.61%

jeff jeffy answered 2 years ago

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