For the last fiscal year, your firm reported a return on assets (ROA) of 6.0 percent and a return on equity (ROE) of 15 percent. This was on sales of $36,000,000 and total assets of $30,000,000. Your CFO noted that the difference between the firm's basic earnings power (BEP) and its cost of debt (interest rate on debt is 6.4 percent) amplified ROE handsomely. Assuming a tax rate of 40 percent, calculate your firm's basic earnings power. Note: BEP EBIT / Total Assets. Enter your answer in decimal format to 4-decimal places. For example, if your answer is 9.55%, enter 0.0955.

For the last fiscal year, your firm reported a return on assets (ROA) of 6.0 percent and a return on equity (ROE) of 15 percent. This was on sales of $36,000,000 and total assets of $30,000,000. Your CFO noted that the difference between the firm's basic earnings power (BEP) and its cost of debt (interest rate on debt is 6.4 percent) amplified ROE handsomely. Assuming a tax rate of 40 percent, calculate your firm's basic earnings power. Note: BEP EBIT / Total Assets. Enter your answer in decimal format to 4-decimal places. For example, if your answer is 9.55%, enter 0.0955.

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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Zelle Inc. had a net profit margin of 5% last year and an equity multiplier of 4.0. If its total assets are $120 million and $180 million of total sales, what is the firm’s return on equity?
An all -equity firm reports a net profit margin of 12% on sales of $6 million. If the tax rate is 35%, what is the pretax profit?
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,201. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 51 Inventories 360 Long-term debt 1,150 Plant and equipment, net 2,160 Common equity 1,669 Total assets $2,880 Total liabilities and equity $2,880 Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %
It was reported last week that Blue Bell Enterprises earned $18.5 million this year. The report also stated that the firm’s return on equity is 11 percent. The firm retains 80 percent of its earnings. What will next year's earnings be? Round to the nearest whole dollar.
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,183. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Cash Assets Accounts receivable Inventories Liabilities And Equity $ 120 Accounts payable and accruals $ 10 53 240 360 Short-term debt Long-term debt 1,130 30 Plant and equipment, net Total assets 2,160 $2,880 Common equity Total liabilities and equity 1,687 $2,880 Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %
7. Here is information from the most recent financial statements for your firm: The Income Statement reports a net income of $298, 000. The Balance Sheet show that Assets is $ 740, 000, Liabilities is $125, 000, and Equity is $ 615,000. Your company maintains a 35% retention ratio. If your firm wishes to maintain the same D/E ratio as last year, how much additional debt do you issue? 8. Here is information from the most recent financial statements for your firm: The Income Statement reports a net income of $298,000. The Balance Sheet show that Assets is $740, 000, Liabilities is $125,000, and Equity is $615,000. Your company maintains a 35% retention ratio. What is the firm's internal growth rate?
Assume that you are on the financial staff of Jerry Inc., and you have collected the following data: The yield on the company's outstanding bonds is 8.75%; its tax rate is 40%; the next expected dividend is $0.75 a share; the dividend is expected to grow at a constant rate of 7.00% a year; the price of the stock is $15.00 per share; and the target capital structure is 40% debt and 60% common equity. What is the firm's WACC? 9.04% 9.80% 8.44% O7.64% 9.30%
Green Penguin Pencil Company has a total asset turnover ratio of 6.00x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $1.75 million on which it pays a 11% interest rate. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Green Penguin Pencil's debt management ratios? Ratio Debt ratio Times-interest-earned ratio Value Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with times-interest-earned ratios (TIE).
a. Last year Harrington Inc. had sales of $654,000 and a net income of $89,000, and its year-end assets were $270,000. The firm's total-debt-to-total-capital ratio was 45.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE?
Lauryn's Doll Company had EBIT last year of $58 million, which is net of a depreciation expense of $5.8 million. In addition, Lauryn's made $6.3 million in capital expenditures and increased net working capital by $2.5 million. Assume that Lauryn's has a reported equity beta of 1.9, a debt-to-equity ratio of 0.6, and a tax rate of 21 percent. What is Lauryn's FCF for the year? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. FCF million
Last year Gray Corp. had net sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 45.0%. The firm uses only debt and common equity as financing. Based on the DuPont equation, what was the ROE?
AU Inc.’s EBIT changes by 15%. The firm computed that they have a Degree of financial leverage of 2.5. What is the expected change in the earnings per share of AU Inc.?

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