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Chapter 2: 14BP a (page 80)
Gates Appliances has a return-on-assets (investment) ratio of 8 percent.
a. If the debt-to-total-assets ratio is 40 percent, what is the return on equity?
Return on equity, when the debt-to-total assets ratio is 40 percent: 13.33%.
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The Haines Corp. shows the following financial data for 20X1 and 20X2:
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 |
For each year, compute the following and indicate whether it is increasing or
decreasing profitability in 20X2 as indicated by the ratio:
c. Interest expenses to sales
What is free cash flow? Why is it important to leveraged buyouts?
Martin Electronics has an accounts receivable turnover equal to 15 times. If accounts receivable are equal to $80,000, what is the value for average daily credit sales?
Using the Du Pont method, evaluate the effects of the following relationships forthe Butters Corporation:
c. What would happen to return on equity if the debt-to-total-assets ratio
decreased to 35 percent?
Dr. Zhiva虁go Diagnostics Corp.鈥檚 income statement for 20X1 is as follows
| Sales | \( 2790000 |
| Cost of goods sold | 1790000 |
| Gross profits | \) 1000000 |
| Selling and administrative expenses | 302000 |
| Operating profits | \( 698000 |
| Interest Expense | 54800 |
| Income before tax | \) 643200 |
| Taxes 30% | 192960 |
| Income after tax | $ 450240 |
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
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