Question

In: Finance

Consider the following two companies: (#s in $millions) Company A Company B Sales 5,990 10,500 EBIT...

Consider the following two companies:
(#s in $millions) Company A Company B
Sales 5,990 10,500
EBIT 600 1120
Interest 40 320
Earnings Before Tax 560 800
Taxes @ 40% 224 320
Net Income 336 480
Debt 400 3,200
Equity 1,600 800

Part (a) Calculate each company's ROE, ROA, and ROIC

Company A
ROE
ROA
ROIC
Company B
ROE
ROA
ROIC

Part (b)

Why is company B’s ROE so much higher than A’s? Does this mean B is a better company? Why or why not?

Hint: ROE = Profit Margin X Asset Turnover X Financial Leverage

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

In 20X5 MyEducator had sales of $5,521 (in millions), EBIT of $1,720 (in millions), and net...
In 20X5 MyEducator had sales of $5,521 (in millions), EBIT of $1,720 (in millions), and net income of $528 (in millions). Its DOL, DFL, and DCL are 3.21, 3.26 and 10.46, respectively. If the sales decreases to $5,200 (in millions) in 20X6, what is the earnings before interest and taxes of MyEducator in 20X6? A)$1,399 B)$674 C)$1,394 D)$1,775 E)$2,041
In 20X8 ABC Corporation had sales of $3,482 (in millions), EBIT of $638 (in millions), and...
In 20X8 ABC Corporation had sales of $3,482 (in millions), EBIT of $638 (in millions), and net income of $189 (in millions). Its DOL, DFL, and DCL are 5.46, 3.38 and 18.42, respectively. If the EBIT decreases to $600 (in millions) in 20X9, what is the net income of ABC in 20X9?
Question text Consider two companies (A and B) with equal profit margins of 18%. Company A...
Question text Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over. Select one: True False
Consider the following financial information of 3 companies. Company A Company B Company C Net Income...
Consider the following financial information of 3 companies. Company A Company B Company C Net Income $3,000 $3,000 $3,000 OCF $5,000 $4,600 $4,200 Which company's earnings are the most questionable (lowest quality)? Company a Company b Company c
Consider two companies, A and B who can borrow at the following annualised rates: Fixed Floating...
Consider two companies, A and B who can borrow at the following annualised rates: Fixed Floating Company A 4.5% 6 month LIBOR + 0.1% Company B 6.0% 6 month LIBOR + 0.6% a) Suppose Company A wants to borrow floating and Company B wants to borrow fixed. What is the potential gain if they enter into a swap? Show your calculations. b) Design a swap in which the gain from the swap is divided equally between the two companies. Show...
The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously...
The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million): Blank for Formatting Pizza Hut Advertising Budget: $1 mill Pizza Hut Advertising Budget: $2 mill Pizza Hut Advertising Budget: $3 mill Papa John's Advertising Budget: $1 mill $225/$175 $215/$185 $210/$180 Papa John's Advertising Budget: $2 mill 235/165 210/170 205/175 Papa John's Advertising Budget: $3 mill 215/155 205/160 200/165 QUESTION: What would be...
For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales...
For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales $36,000 Food and packaging $8,820 Payroll 9,500 Occupancy (rent, depreciation, etc.) 12,180 General, selling, and admin. expenses 5,500 Other expense 720 Total expenses (36,720) Operating income (loss) $(720) a. What is McDonald's contribution margin? Enter your answer in million, rounded to one decimal place. b. What is McDonald's contribution margin ratio? Round your percentage answer to one decimal place. c. How much would operating...
For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales...
For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales $20,200 Food and packaging $7,702 Payroll 5,400 Occupancy (rent, depreciation, etc.) 3,998 General, selling, and admin. expenses 3,100 Other expense 400 Total expenses (20,600) Operating income (loss) $(400) Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Enter your answer in million, rounded to one decimal place....
For a recent year, McDonald's Company-owned restaurants had the following sales and expenses (in millions): Sales...
For a recent year, McDonald's Company-owned restaurants had the following sales and expenses (in millions): Sales $25,400 Food and packaging $7,868 Payroll 6,400 Occupancy (rent, depreciation, etc.) 6,672 General, selling, and administrative expenses 3,700 $24,640 Income from operations $760 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions of dollars.) $ million b. What...
Company A is considering acquiring company B. The two companies are in different, but not totally...
Company A is considering acquiring company B. The two companies are in different, but not totally unrelated, industries. You are hired by company A to make a positive or negative recommendation about the acquisition. In preparing your recommendation you consider using the Discounted Cash Flow (DCF) model as well as the Real Options model to assess the value of the potential acquisition. You also plan to use the CAPM to assess and value the risk of the acquisition. Explain how...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT