10BP Fondren Machine Tools has total ... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 10BP (page 79)

Fondren Machine Tools has total assets of $3,310,000 and current assets of $879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders鈥� equity?

Short Answer

Expert verified

The return on the stockholder鈥檚 equity of the company is 26.93%.

Step by step solution

Fixed assets of the company

$F i x e d a s s e t s = T o t a l a s s e t - C u r r e n t a s s e t = $ 3, 310, 000 - $ 879, 000 = $ 2, 431, 000$

Sales of the company

$S a l e = T o t a l f i x e d a s s e t 脳 F i x e d a s s e t t u r n o v e r r a t i o = $ 2, 431, 000 脳 3.6 = $ 8, 751, 600$

Net income of the company

$N e t i n c o m e = S a l e s 脳 P r o f i t m a r g i n = $ 8, 751, 600 脳 4.8 % = $ 420, 077$

Stockholder’s equity of the company

$S t o c k h o l d e r 鈥� s e q u i t y = T o t a l a s s e t s - T o t a l d e b t s = $ 3, 310, 000 - $ 1, 750, 000 = $ 1, 560, 000$

Return on stockholder’s equity

$R e t u r n o n s t o c k h o l d e r 鈥� s e q u i t y = \frac{N e t i n c o m e}{S t o c k h o l d e r 鈥� s e q u i t y} = \frac{$ 420, 077}{$ 1, 560, 000} = 26.93 %$

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Accumulated depreciation	\(309,000
Retained earnings	187,000
Cash	14,000
Bonds payable	136,000
Accounts receivable	54,000
Plant and equipment 鈥� original cost	775,000
Accounts payable	35,000
Allowance for bad debts	9,000
Common stock, \)1 par, 100,000 share outstanding	100,000
Inventory	70,000
Preferred stock, $59 par, 1,000 share outstanding	59,000
Marketable securities	24,000
Investments	20,000
Notes payable	34,000
Capital paid in excess of par (common stock)	88,000

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

Increase in accounts receivable	Decrease in prepaid expenses
Increase in notes payable	Increase in inventory
Depreciation expense	Dividend payment
Increase in investment	Increase in accrued expenses
Decrease in account payable

91影视

Fondren Machine Tools has total assets of \(3,310,000 and current assets of \)879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders鈥� equity?

Short Answer

Step by step solution

Fixed assets of the company

Sales of the company

Net income of the company

Stockholder’s equity of the company

Return on stockholder’s equity

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