(A) Adequate information: Net Profit - $510 Pretax Profit - $805 EBIT - $830 Sales - $5140 Assets - $3100 Equity - $2200 To identify and calculate five components that determines Du Pont Formula Introduction: In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as: Return on Equity = Net profit Pretax profit EBIT Sales Assets __ × × _ × _ × _____ Pretax profit EBIT Sales Assets Equity = Tax burden × Interest burden × Margin × Turnover × Leverage

Question

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Answer 1

Question

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

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Students have asked these similar questions

A) Construct an income statement for each year B) Construct a balance sheet for each year. Make sure the balance sheets are balanced (Hint: New equity raised for the year 2025 is not given you will have to obtain it, and it will be equal to the amount needed to balance the balance sheet)

The specific financial aspects to be considered with your analysis are:• Profit Margin• Total Owners' Equity.• Current Ratio.• Return on Equity.• Debt Equity Ratio.• Earnings per Share.

For the companies Lockheed-Martin (LMT) & Northrop-Grumman (NOC) Use Macrotrends data to calculate Return on Sales, Return on Assets, Debt Ratio, Inventory Turnover, Lead Time for each company Use Fintel to determine EPS forecasts for 2024-2027 for each company, and use those to calculate an average earnings growth rate for each - https://fintel.io/sfo/us/Imt https://fintel.io/sfo/us/noc Assuming MARR = WACC + 3%, calculate a fair market price for the stock of each company, assuming that earnings grow at the calculated rate for the next 50 years, with the following WACC LMT: NOC: 8.00% 8.25% Find the current stock price for each company Based on the above calculations, which company's stock would you buy, and provide your reasoning (If neither or both, explain reasoning)

Answer 2

Question

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

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Answer 3

Question

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

Expert Solution & Answer

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See solution

Answer 4

Question

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

Answer 6

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Answer 7

Chapter 19, Problem 2CP

Summary Introduction

(A)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To identify and calculate five components that determines Du Pont Formula

Introduction:

In Du-pont system, the return on equity is decomposed into five components which are tax burden, interest burden, profit margin, assets turnover and leverage. Thus decomposed return on equity is calculated as:

Return on Equity = Net profit Pretax profit EBIT Sales Assets

__ × × _ × _ × _____

Pretax profit EBIT Sales Assets Equity

= Tax burden × Interest burden × Margin × Turnover × Leverage

Answer 8

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Answer 9

Summary Introduction

(B)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

To calculate Return On Equity(ROE) for 2019 using components of Du Pont Formula.

Introduction:

Return on Equity measures the financial performance of the company by focussing only on the profitability of equity investments. It is expressed as:

Return on Equity=Net IncomeShareholders equity

Though in Du-pont system, the return on equity is decomposed into five components. Thus decomposed return on equity is calculated as:

ReturnonEquity = NetprofitPretaxprofit×PretaxprofitEBIT×EBITSales×SalesAssets×AssetsEquity= TaxBurden×InterestBurden×Margin×Turnover×Leverage

Answer 10

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

Answer 11

Summary Introduction

(C)

Adequate information:

Net Profit - $510

Pretax Profit - $805

EBIT - $830

Sales - $5140

Assets - $3100

Equity - $2200

Dividend per share - 0.60

Earnings Per Share(EPS)- $1.96

To calculate the firm's sustainable growth rate for 2019 from firm's ROE and plowback ratios.

Introduction:

The sustainable growth is the maximum growth rate that a firm can sustain without having to lookout for outside finance. It is multiple of return on equity and retention ratio. It is calculated as:

Sustainable Growth rate = Return on equity * Plowback ratio

Answer 12

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

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Answer 15

Ch. 19 - Prob. 1PS Ch. 19 - Prob. 2PS Ch. 19 - Prob. 3PS Ch. 19 - Prob. 4PS Ch. 19 - Prob. 5PS Ch. 19 - Prob. 6PS Ch. 19 - Prob. 7PS Ch. 19 - Prob. 8PS Ch. 19 - Prob. 9PS Ch. 19 - Prob. 10PS

Solution Summary: The author explains Du-Pont's return on equity, which measures the financial performance of the company by focussing only on the profitability of equity investments.

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