Learning Materials
Features
Discover
Chapter 2: 14BP b (page 80)
Gates Appliances has a return-on-assets (investment) ratio of 8 percent.
b. If the firm had no debt, what would the return-on-equity ratio be?
Return on equity, when the firm has no debt: 8%
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
Perez Corporation has the following financial data for the years 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(8,000,000 | \)10,000,000 |
Cost of goods sold | 6,000,000 | 9,000,000 |
Inventory | 800,000 | 1,000,000 |
b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year.
Network Communications has total assets of \(1,500,000 and current assets of \)612,000. It turns over its fixed assets three times a year. It has $319,000 of debt. Its return on sales is 8 percent. What is its return on stockholders鈥� equity?
The Rogers Corporation has a gross profit of \(880,000 and \)360,000 in depreciation expense. The Evans Corporation also has \(880,000 in gross profit,
with \)60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company. Given that the tax rate is 40 percent, compute the cash flow for both companies.
Explain the difference in cash flow between the two firms.
Landers Nursery and Garden Stores has current assets of \(220,000 and fixed assets of \)170,000. Current liabilities are \(80,000 and long-term liabilities are \)140,000. There is $40,000 in preferred stock outstanding and the firm has
issued 25,000 shares of common stock. Compute book value (net worth)
per share.
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:
Current assets | Liabilities | ||
Cash | \(15,000 | Accounts payable | \)17,000 |
Accounts receivable | 20,000 | Notes payable | 25,000 |
Inventory | 30,000 | Bonds payable | 55,000 |
Prepaid expenses | 12,500 | ||
Fixed assets | Stockholder鈥檚 equity | ||
Plant and equipment (gross) Less: accumulated depreciation | \(255,000 51,000 | Preferred stock | \)25,000 |
Net plant and equipment | \(204,000 | Common stock | 60,000 |
Paid in capital | 30,000 | ||
Retained earnings | 69,500 | ||
Total assets | \)281,500 | Total liabilities and stockholder鈥檚 equity | \(281,500 |
Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.
\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 20X2, the cash balance and prepaid expenses balances were
unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
a. Prepare an income statement for 20X2.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine