Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $550,000, and its net income was $25,000.Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would the firm need inorder to achieve the 15% ROE, holding everything else constant? Do not round your intermediate calculations.a. 10.13%b. 10.64%c. 10.23%d. 8.59%e. 9.92%

Profit margin is a financial metric that measures a company's profitability by expressing its net…

Answered: Chang Corp. has $375,000 of assets, and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Pacific Packaging's ROE last year was only 4%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $720,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $2,340,000 on sales of $20,000,000, and it expects to have a total assets turnover ratio of 3.9. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places. %
Ketchup Corporation is currently trading at $35 per share. There are 8 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 30% over 1 year the management were replaced. How much would you gain from acquiring 60% of the Ketchup's shares by getting a 1-year 10%-interest loan? Hint: you are not using your own money. The money for the investment comes from the loan Mutiple Choice $84.000.000 $50,400,000 $33,600,000 $0. $107,520.000
You have been hired by a new firm that is just being started. The CFO wants to finance with 60% debt, but the president thinks it would be better to hold the percentage of debt in the capital structure (wa) to only 10%. The company is small, so it is not subject to the interest deduction limitation. Other things held constant, and based on th data below, if the firm uses more debt, by how much would the ROE change, i.e., what is ROEHigher - ROELower? Do not round your intermediate calculations. Operating Data Other Data Capital $4,000 Higher wd 60% ROIC = EBIT(1 - T)/Capital 12.00% Higher interest rate 13% %3D Tax rate 25% Lower wd 10% Lower interest rate 9% a. 3.75% b. 2.22% C 2.80% d. 2.54% e. 1,87%
(b) The company paid $1 million of dividends in the past year. Its market capitalization was $10 million. Based on his own analysis, Jack suggests that the company increases its use of equity financing, because “debt costs 12.5 percent, but equity only costs 10 percent; thus, equity is cheaper.” Appraise Jack’s statement.
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The answer was incorrect. Could I have help with this one? Futuristic Development (FD) generated $3 million in sales last year with assets equal to $5 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $380,000. The only other liability is long-term debt, which equals $750,000. The common equity section is comprised of 400,000 shares of common stock with a book value equal to $3 million and $870,000 of retained earnings. Next year, FD expects its sales will increase by 16 percent. The company's net profit margin is expected to remain at its current level, which is 11 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 50,000 shares of new common stock, which will raise $395,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next year. Round your answer to the nearest dollar.
Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?
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Western Electric Utility Company faces increasing needs for capital. Fortunately, it has an A (low) credit rating. The corporate tax rate is 30 percent. Western’s treasurer is trying to determine the corporation’s current weighted average cost of capital to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased at about a 6.0 percent annual rate. Western Electric’s common stock is selling at $60 per share, and the company will pay a $4.50 per share dividend (D1). The company’s $100 preferred stock has been yielding 9 percent in the current market. Flotation costs for the company have been estimated by its investment dealer to be $1.50 for preferred stock. The company’s optimum capital structure is 40 percent debt, 10 percent preferred stock, and 50 percent common equity in the form of retained earnings. Refer to the table below on bond issues for comparative yields on bonds of equal risks to Western…
The Rock Timber Co. Had total earnings last year of P5million but expects total earnings to drop to P4,750,000 this year because of a slump in the housing industry. There are currently one million shares of common stock outstanding. The company has P4million worth of investments to undertake this year. The company financed 40% of its investment with debt and 60% with equity capital. The company paid P3 per share in dividends last year. a. If the company follows a pure residual dividend policy, how large a dividend will each shareholder receive this year? b. If the company maintains a constant payout ratio each year, how large will each shareholder receive this year? c. If the company follows a constant Peso dividend policy, how large a dividend will each stockholder receive this year?

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