EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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Textbook Question
Chapter 4, Problem 10SP
(Evaluating current and proforma profitability) (Financial ratios—investment analysis) The annual sales for Salco Inc. were $4.5 million last year. All sales are on credit. The firm’s end-of-year
The firm’s income statement for the year was as follows:
- a. Calculate Salco’s total asset turnover, operating profit margin, and operating
return on assets . - b. Salco plans to renovate one of its plants, which will require an added investment in plant and equipment of $1 million. The firm will maintain its present debt ratio of 0.5 when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13 percent. What will be the new operating return on assets for Salco after the plant’s renovation?
- c. Given that the plant renovation in part (b) occurs and Salco’s interest expense rises by $50,000 per year, what will be the return earned on the common stockholders’ investment? Compare this
rate of return with that earned before the renovation.
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PROBLEM 2
On July 1, 2022, LTU Contracting, Inc. purchased a new Peiner SK575 Tower Crane for
a total cost of $875,000. The crane has an estimated useful life of five (5) years. For
financial reporting (book) purposes, the company utilizes straight line depreciation. For
tax purposes, the equipment is depreciated over five years utilizing the 200% declining
balance method.
A. Prepare a table that computes the book and tax depreciation for each year of the
useful life and determine the difference in book value between each method at
the end of each year.
B. On July 1st, 2025, the company is considering selling the crane for $500,000.
Compute what the gain or loss would have been at that time for both book and
tax purposes.
Brightwoodę Furniture provides the following financial data for a
given enod:
Sales
Aount ($) Per Unit ($)
150,000
13
Less Variable E
-
L96,000
13
Contribwaon Margin c
1C
Less Fixed Expenses
$5,000
et Income
125,000
a. What is the company's CM ratio?
b. If quarterly sales increase by $5,200 and there is no change in fixed
expenses, by how much would you expect quarterly net operating
income to increase?
Please give correct answer dont use chatgpt .
if image is blurr or any data is unclear then please comment i will write values , dont give answer without sure that data in image is showing properly.
Chapter 4 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 4 - Describe the five-question approach to using...Ch. 4 - What are the limitations of industry average...Ch. 4 - What is the difference between a firms gross...Ch. 4 - Prob. 9RQCh. 4 - Prob. 1SPCh. 4 - Prob. 2SPCh. 4 - Prob. 3SPCh. 4 - (Price/ book) Chang, Inc.s balance sheet shows a...Ch. 4 - Prob. 5SPCh. 4 - (Ratio analysis) The balance sheet and income...
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