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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If I could please get help with Part D, would be greatly appreciated. Thanks so much!
Transcribed Image Text:Tops Markets, Inc. has $54 million of current assets and $58 million of noncurrent assets. It
forecasts an EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank
notes carry a 5% interest rate, and the company can issue long-term bonds at 7%. The
company has set a target debt ratio of 45%.
Required:
A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
abbreviated balance sheet.
B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
financial half of its income statement.
C. Based on the financial statements above, calculate the return on equity ratio in
order to evaluate the company's risk and return.
D. Based on the financial statements above, calculate the current ratio in order to
evaluate the company's risk and return.
Your answers to this open-ended assignment should be
placed in the space below this line.
A Current assets
54,000,000
Noncurrent assets
58,000,000
Total Assets
112,000,000
Current liabilities
30,240,000
Long-term liabilities
20,160,000
Total debit
50,400,000
Stockholders' equity
61,600,000
Total liabilities & equity
112,000,000
B EBIT
10,400,000
Interest on current liabilities
1,512,000
Interest on noncurrent debt
1,411,200
Total interest
2,923,000
7,477,000
Earnings before taxes
Income taxes
2,616,950
Net income
4,860,050
C Net income
4,860,050
Stockholders' equity
61,600,000
Return on equity
7.88%
D Current assets
Current liabilities
Return on equity
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