In 2020, Jubail Corporation is currently analyzing two investment opportunities (buying stocks in the food and beverages industry). The intention of the management is to assign a Price-Eamings Ratio (PE) of 16 times to the average firm in the food and beverages industry. However, Jubail Corporation will assign a 20% premium to the PIE of a company that uses conservative financing decisions in its capital structure. This is because of the nature of the industry. The following information were collected about two firms in the food and beverages industry with the following financial data: Firm 1 Firm 2 Profit Margin Total Assets Turnover Total Debt Ratio Earnings Shares Outstanding 5% 4.2% 2.1 Times 3.5 Times 60% 30% SAR 40,000,000SAR 15,000,000 16,000,000 6,250,000 As the Financial Manager for Jubail Corporation, you are required to provide your Chief Financial Officer with the following information: 1. Determine the Return on Equity for each firm by using the Du Pont Method of analysis.

In 2020, Jubail Corporation is currently analyzing two investment opportunities (buying stocks in the food and beverages industry). The intention of the management is to assign a Price-Eamings Ratio (PE) of 16 times to the average firm in the food and beverages industry. However, Jubail Corporation will assign a 20% premium to the PIE of a company that uses conservative financing decisions in its capital structure. This is because of the nature of the industry. The following information were collected about two firms in the food and beverages industry with the following financial data: Firm 1 Firm 2 Profit Margin Total Assets Turnover Total Debt Ratio Earnings Shares Outstanding 5% 4.2% 2.1 Times 3.5 Times 60% 30% SAR 40,000,000SAR 15,000,000 16,000,000 6,250,000 As the Financial Manager for Jubail Corporation, you are required to provide your Chief Financial Officer with the following information: 1. Determine the Return on Equity for each firm by using the Du Pont Method of analysis.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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