In analyzing two firms in the same industry, we gather the following information:Firm ANet income for the yearCommon equity, Jan 1Common equity, Dec 31$120$950$1,05010%Firm B(A) Firm A's return on equity (ROE) for the year is 11.4%.(B) Firm A's return on equity (ROE) for the year is 12.6%.$130$2,000Cost of equity capitalAssuming there are no accounting distortions, which of the following statements is correct?$2,00010%Firm A is a less attractive investment opportunity than Firm B because Firm A has a lower net income.DFirm A is a more attractive investment opportunity than Firm B because Firm A's return is greater than its cost of equitycapital.E There is more than one correct statement.

Name: In analyzing two firms in the same industry, we gather the following
Uploaded: 2024-03-20T06:33:21.000Z
Channel: Bartleby
Description: In analyzing two firms in the same industry, we gather the following information:Firm ANet income for the yearCommon equity, Jan 1Common equity, Dec 31$120$950$1,05010%Firm B(A) Firm A's return on equity (ROE) for the year is 11.4%.(B) Firm A's retu

Return on equity is the important measure of profitability and its shows the profit earned by equity…

Business

Finance

In analyzing two firms in the same industry, we gather the following information: Firm A Net income for the year Common equity, Jan 1 Common equity, Dec 31 Cost of equity capital $120 $950 $1,050 10% Firm B $130 $2,000 $2,000 10%

In analyzing two firms in the same industry, we gather the following information: Firm A Net income for the year Common equity, Jan 1 Common equity, Dec 31 Cost of equity capital $120 $950 $1,050 10% Firm B $130 $2,000 $2,000 10%

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

See similar textbooks

Similar questions

14 A. Assume Skyler Industries has debt of $4,377,783with a cost of capital of 9.7% and equity of $5,791,640 with a cost of capital of 6%. What is Skyler’s total weighted average cost of capital? Round to the nearest hundredth, two decimal places and submit the answer in a percentage
Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 20Y7 20Y6 20Y5 Total assets $250,000 $225,000 $200,000 Notes payable (8% interest) 80,000 80,000 80,000 Common stock 32,000 32,000 32,000 Preferred 7% stock, $100 par 16,000 16,000 16,000 (no change during year) Retained earnings 88,510 64,380 48,000 The 20Y7 net income was $25,250, and the 20Y6 net income was $17,500. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7. a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. When required, round to one decimal place. 20Y7 20Y6 Return on total assets fill in the blank 1 % fill in the blank 2 % Return on stockholders’ equity fill…
Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $ 78 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 960,000 0 2,700,000 3,900,000 240,000 7,800,000 9,300,000 $ 17,100,000 $ 3,900,000 3,600,000 7,500,000 7,800,000 1,800,000 9,600,000 $ 17,100,000 $ 1,260,000 300,000 1,800,000 2,400,000 180,000 5,940,000 8,940,000 $ 14,880,000 $ 2,760,000 3,000,000 5,760,000 7,800,000 1,320,000 9,120,000 $ 14,880,000 Sales (all on account) Lydex Company Comparative Income Statement and Reconciliation This Year $ 15,750,000 12,600,000 3,150,000 1,590,000 Last Year $ 12,480,000 9,900,000 2,580,000 Cost of goods sold Gross margin Selling and…
A firm has total equity of $2,0tt, net working capital of $175, long-term debt of $890, and current liabilities of $420 What is the amount of the net fixed assets? Multiple Choice $3,075 $2,726 $2.974 $2.326 $2.825
Financial Accounting C.Mulford: Financial Statement Analysis: 35 Using DuPont Analysis to Compare Corporate Performance Exercise Using Data for Thiokol Corp. and Wyman-Gordon, Inc. Use the data provided below to compare financial performance for the two companies (amounts in millions). Thiokol $ 889.5 Wyman-Gordon $ 499.6 Sales Net income $ 51.4 $ 25.2 Total assets $ 818.3 $ 375.9 Shareholders' equity $ 447.9 $ 109.9 Using DuPont Analysis we see that, Thiokol Corp.: Return on equity Net income Sales Total assets X X Sales Total assets Shareholders' equity Financial leverage. (debt multiplier) Net margin X Asset turnover X (asset multiplier) Return on equity X
Financial Accounting CMulford: Financial Statement Analysis: 13 Using Return on Assets and Return on Equity to Compare Performance Across Companies Thiokol Corp. and Wyman-Gordon, Inc. In a recent fiscal year, Thiokol Corp. reported sales of $889.5 million and net income of $51.4 million. For the same year, Wyman-Gordon, reported sales of $499.6 million and net income of $25.2 million, about half the income of Thiokol. Both companies are in the same industry, aerospace and defense. Use the data provided below to compare financial performance for the two companies (amounts in millions). Thiokol $ 889.5 $ 51.4 $ 818.3 $ 447.9 Wyman-Gordon $ 499.6 $ 25.2 $ 375.9 $ 109.9 Sales Net income Total assets Shareholders' equity Calculate: Return on assets Return on equity Why is Return on equity so different for the two companies?
Profit margin Capital intensity ratio Debt-equity ratio Net income Dividends 8.8% 49 64 -$99,000 $46,000 Based on the above information, calculate the sustainable growth rate for Northern Lights Co. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.32.16) Sustainable growth a
Vertical analysis Two income statements for Cornea Company follow: Cornea Company Income Statements For the Years Ended December 31 20Y9 20Y8 Fees earned $1,570,000 $1,300,000 Expenses (832,100) (780,000) Net income $737,900 $520,000 Required: a. Prepare a vertical analysis of Cornea Company’s income statements. If required, round your percentage to the nearest whole number. Cornea Company Income Statements For the Years Ended December 31 20Y9 20Y8 Amount Percent Amount Percent Fees earned $1,570,000 % $1,300,000 % Expenses (832,100) % (780,000) % Operating income $737,900 % $520,000 % b. Does the vertical analysis indicate a favorable or an unfavorable trend?
Assume the following data for Cable Corporation and Multi-Media Incorporated. Multi-Media Incorporated Cable Corporation $ 39,800 352,000 409,000 $ 190,000 2,170,000 966,000 234,000 545,000 175,000 421,000 Net income Sales Total assets Total debt Stockholders' equity a. 1. Compute return on stockholders' equity for both firms. Note: Input your answers as a percent rounded to 2 decimal places. Cable Corporation Multi-Media, Incorporated 2. Which firm has the higher return? Return on Stockholders' Equity % %
Consider the following partial income statements and balance sheets for Lillard Corp. For the year ended December 31, Net income Less income attributable to noncontrolling 5,700 interests Net income attributable to Lillard Corp. 100,400 107,300 Lillard Corp. shareholders' equity Noncontrolling interests Total equity What is Lillard's return on equity for 2024? 11.7% O 11.5% 12.3% 11.9% 2024 2023 108,000 113,000 11.1% 7,600 Dec. 31, 2024 Dec. 31, 2023 861,000 888,000 32,400 30,600 893,400 918,600
Ratios Analyzing Firm ProfitabilityThe following information is available for Buhler Company: Annual Data Current Year Previous Year Net sales $8,800,000 $8,200,000 Gross profit on sales 3,053,000 2,736,000 Net income 567,600 488,000 Dec. 31, Dec. 31, Year-End Data Current Year Previous Year Total assets $6,700,000 $6,300,000 Stockholders' equity 3,800,000 3,200,000 Calculate the following ratios for the current year: Note: Round answers to one decimal place, unless otherwise noted. a. Gross profit percentageAnswer%b. Return on salesAnswer%c. Asset turnover (Round answer to two decimal places.)Answerd. Return on assetsAnswer%e. Return on common stockholders' equity (Buhler Company has no preferred stock.)Answer% PreviousSave AnswersNext
Current assets Long-term assets Total Locust Farming Balance Sheet ($ in millions) $ 42,524 46,832 Current liabilities Long-term debt Other liabilities Equity $ 89,356 Total $ 29,755 27,752 14,317 17,532 $ 89,356 Locust has 657 million shares outstanding with a market price of $83 a share. a. Calculate the company's market value added. b. Calculate the market-to-book ratio. c. How much value has the company created for its shareholders as a percent of shareholders' equity, that is, as a percent of the net capital contributed by shareholders?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS