Last year, a company had $355,000 in assets, $26,275 of net income, and a debt-to-total-assets ratio of 44%. Now suppose the newly hired CFO convinces the president to increase the debt ratio to 58%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and therefore keep net income unchanged. What was the original return on equity (ROE) for this company?

Last year, a company had $355,000 in assets, $26,275 of net income, and a debt-to-total-assets ratio of 44%. Now suppose the newly hired CFO convinces the president to increase the debt ratio to 58%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and therefore keep net income unchanged. What was the original return on equity (ROE) for this company?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Last year Blease Inc had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $270,000 and its net income was $10,600. The firm finances using only debt and common equity, and its total assets equal total invested capital. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $10,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income by this amount, how much would the ROE have changed? Do not round your intermediate calculations. O a. 9.10% O b. 10.60% O c. 8.84% O d. 10.25% e. 6.72%
Signature Corporation, which is currently operating at full capacity, has sales of $75,000, current assets of $4,500, current liabilities of $3,200, net fixed assets of $55,500, and a 10 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 8.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much is the external financing need (EFN) for next year? O a. -$2,099.5 O b. -$3,309.5 O c. $4,201 O d. $5,914
Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 28,000 Assets $ 9,700 Debt $ 4,600 Costs 13,400 Equity 5,100 Net income $ 14,600 Total $ 9,700 Total $ 9,700 The company has predicted a sales increase of 9 percent. It has predicted that every item on the balance sheet will increase by 9 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here? Multiple Choice $15,455 $15,437 $24,241 $15,441 $15,432
Red Spark Incorporated is interested in assessing the following scenarios on its indicators of profitability. Solve each scenario independently. a. Red Spark has taken significant steps to decrease expenses and expects its net income to increase by $8 million to $68 million. If its profit margin is 5.0%, what will the profit margin be after considering the decreased expenses? b. Red Spark has taken significant steps to decrease expenses and expects its net income to increase by $8 million to $68 million. If its average total assets are $494 million, what will its return on assets be?
Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?
you a controller and the company always aim sustainable net income, but the company for this year had extremely high income due to increase of sales , so the president ask you to increase the yearly allowance for doubtful account from 4% to 6% of net credit sales because he is nervous the stockholders might expect the company to always be able to sustain such a high net income. Q/ as controller what actions should you take and whay ? If
Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 25,000 Assets $ 9,200 Debt $ 4,700 Costs 13,800 Equity 4,500 Net income $ 11,200 Total $ 9,200 Total $ 9,200 The company has predicted a sales increase of 9 percent. It has predicted that every item on the balance sheet will increase by 9 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here?
provide correct option
The most recent financial statements for Crosby, Incorporated, follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant. CROSBY, INCORPORATED 2020 Income Statement Sales $ 756,000 Costs 612,000 Other expenses 25,500 Earnings before interest and taxes $ 118,500 Interest paid 11,200 Taxable income $ 107,300 Taxes (23%) 24,679 Net income $ 82,621 Dividends $ 41,340 Addition to retained earnings 41,281 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 24,540 Accounts payable $ 58,600 Accounts receivable 33,890 Notes payable 15,500…
LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? a. 7.57% b. 7.95% c. 8.35% d. 8.76% e. 9.20%
Please help and only correct please with steps and dont do handwritten.
Sara is trying to analyze Henley Company finances but realizes that she was missing the company's net profits after taxes for the current year. Find the company's net profits after tax.ROA = 2.5%Total asset turnover = 0.5COGS = $105,000Gross profit margin = 0.30