is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? Net income =

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
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1) An investor is considering starting a new business. The company would require
$475,000 of assets, and it would be financed entirely with common stock. The
investor will go forward only if she thinks the firm can provide a 13.5% return on
the invested capital, which means that the firm must have a ROE of 13.5%. How
much net income must be expected to warrant starting the business?
Netincome =
2) Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. The
new CFO wants to employ a debt ratio of 55%. How much debt must the company
add or subtract to achieve the target debt ratio?
29,6
Debt Ratio total debt
total Asset
3) Orono Corp.'s sales last year were $435,000, its operating costs were $362,500,
and its interest charges were $12,500. What was the firm's times interest earned
(TIE) ratio?
TIF = earning before tax or Int
29
I
=
362500
12500
4) Nikko Corp.'s total common equity at the end of last year was $305,000 and its net
income after taxes was $60,000. What was its ROE?
60 000
ROE NetPat
TE
1967
305000
185000
625000
22750
315000
-
5) Branch Corp.'s total assets at the end of last year were $315,000 and its ne
income after taxes was $22,750. What was its return on total assets?
ROA - NetProfit
TA
= 0,672
Transcribed Image Text:1) An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? Netincome = 2) Pace Corp.'s assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio? 29,6 Debt Ratio total debt total Asset 3) Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times interest earned (TIE) ratio? TIF = earning before tax or Int 29 I = 362500 12500 4) Nikko Corp.'s total common equity at the end of last year was $305,000 and its net income after taxes was $60,000. What was its ROE? 60 000 ROE NetPat TE 1967 305000 185000 625000 22750 315000 - 5) Branch Corp.'s total assets at the end of last year were $315,000 and its ne income after taxes was $22,750. What was its return on total assets? ROA - NetProfit TA = 0,672
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