Last year Ann Arbor Corp had $250,000 of assets (which equals total invested capital), $305,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%.The new CFO believes that a new computer program will enable the company to reduce costs and thus raise net income to $33,000. The firm finances using only debt andcommon equity. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not roundyour intermediate calculations.a. 6.74%b. 8.32%c. 8.57%d. 8.82%e. 8.15%

ROE is a key financial ratio that provides insights into a company's profitability and efficiency in…

Answered: Last year Ann Arbor Corp had $250,000…

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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Macon Mills is a division of Bolin Products, Inc. During the most recent year, Macon had a net income of $38 million. Included in the income was interest expense of $3,300,000. The company's tax rate was 40%. Total assets were $465 million, current liabilities were $109,000,000, and $67,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon? Enter your answer in whole dollar. Round "ROI" answer to two decimal places.
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Joey Shamah and Scott Borba are the founders of e.l.f. Cosmetics. Assume that the company currently has $250,000 in equity and is considering a $100,000 expansion to meet increased demand. The $100,000 expansion would yield $16,000 in additional annual income before interest expense. Assume that the business currently earns $40,000 annual income before interest expense of $10,000, yielding a return on equity of 12% ($30,000/$250,000). To fund the expansion, the company is considering the issuance of a 10-year, $100,000 note with annual interest payments (the principal due at the end of 10 years). Required 1. Using return on equity as the decision criterion, show computations to support or reject the expansion if interest on the $100,000 note is (a) 10%, (b) 15%, (c) 16%, (d) 17%, and (e) 20%. 2. What general rule do the results in part 1 illustrate?
Plank’s Plants had net income of $10,000 on sales of $40,000 last year. The firm paid a dividend of $2,300. Total assets were $700,000, of which $350,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
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?
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?
Last year Kruse Corp had $355,000 of assets (which is equal to its total invested capital), $403,000 of sales, $28,250 of net income, and a debt-to-total-capital ratio of 39%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total invested capital to $252,500. The firm finances using only debt and common equity. Sales, costs, and net income would not be affected, and the firm would maintain the same capital structure (but with less total debt). By how much would the reduction in assets improve the ROE? Do not round your intermediate calculations. Group of answer choices 5.30% 4.29% 4.66% 5.35% 5.24%
Gibson Company sales for the Year 1 were $2 million. The firm’s variable operating cost ratio was 0.45, and fixed costs (that is, overhead and depreciation) were $700,000. Its average (and marginal) income tax rate is 40 percent. Currently, the firm has $2.4 million of long-term bank loans outstanding at an average interest rate of 13.0 percent. The remainder of the firm’s capital structure consists of common stock (140,000 shares outstanding at the present time). Calculate Gibson’s degree of combined leverage for Year 1. Round your answer to two decimal places. Gibson is forecasting a 8 percent increase in sales for next year (Year 2). Furthermore, the firm is planning to purchase additional labor-saving equipment, which will increase fixed costs by $130,000 and reduce the variable cost ratio to 0.430. Financing this equipment with debt will require additional bank loans of $400,000 at an interest rate of 13.0 percent. Calculate Gibson’s expected degree of combined leverage for…
As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity). Consider this case: Green Moose Industries has no debt in its capital structure and has $300 million in assets. Its sales revenues last year were $210 million with a net income of $10 million. The company distributed $1.55 million as dividends to its shareholders last year. What is the firm’s self-supporting, growth rate? (Note: Do not round your intermediate calculations.) 2.90% 0.61% 4.00% 0.52% Which of the following are assumptions of the self-supporting growth model? Check all that apply. The firm must issue the same number of new common shares that it issued last year. Common stock is the firm’s only form of equity.…
Merton Analytics is considering changes in its working capital policies to improve its cash ﬂow cycle. Merton’s sales last year were $4,250,000 (all on credit), and its net proﬁt margin was 7%. Its inventory turnover was 7.5 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $2,200,000. The ﬁrm had ﬁxed assets totaling $585,000. Merton’s payables deferral period is 42 days. Calculate Merton’s cash conversion cycle. Assuming Merton holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose Merton’s managers believe the annual inventory turnover can be raised to 9.5 times without affecting sales. What would Merton’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.5 for the year?
Is it possible that I can get help with this? I am not understanding why it is wrong. I have attached an example of the correct solution. Futuristic Development (FD) generated $3 million in sales last year with assets equal to $6 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $480,000. The only other liability is long-term debt, which equals $1,035,000. The common equity section is comprised of 500,000 shares of common stock with a book value equal to $3 million and $1,485,000 of retained earnings. Next year, FD expects its sales will increase by 20 percent. The company's net profit margin is expected to remain at its current level, which is 16 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 70,000 shares of new common stock, which will raise $460,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next…
The king carpet company has $2,820,000 in cash and a total of $11,280,000 in current assets. The firms current liabilities equal $6,730,000 such that the firms current ratio equals 1.7. The company’s managers want to reduce the firm’s cash holdings down to $1,150,000 by paying $591,000 in cash to expand the firm’s truck fleet and using $1,079,000 in cash to retire a short term note. If they carry this plan through, what will happen to the firm’s current ratio? The new current ratio is Round to one decimal place.

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