1. If Wilkinson, Inc., has an equity multiplier of 1.63, total asset turnover of 2.5, and a profit margin of 4.3 percent, what is its ROE?
2. Synovec Company has a debt—equity ratio of .75. Return on assets is 8.6 percent, and total equity is $914,000. What is the company's equity multiplier?
Equity multiplier
3. What is the company's return on equity?
Return on equity
4. What is the company's net income?
The most recent financial statements for Heine, Inc., are shown here:
Income Statement Balance Sheet
Sales $ 23,700 Assets $ 55,200 Debt $ 20,400
Costs 14,400 Equity 34,800
Taxable income $ 9,300 Total $ 55,200 Total $ 55,200
Taxes (40%) 3,720
Net income $ 5,580
5. Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,800 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $29,625.What is the external financing needed?
The most recent financial statements for Wise Co. are shown here:
|
Income Statement
|
|
Balance Sheet
|
|
|
Sales
|
$ 49,400
|
Current assets
|
$ 22,200
|
Long-term debt
|
$ 39,500
|
|
Costs
|
37,700
|
Fixed assets
|
88,000
|
Equity
|
70,700
|
|
Taxable income
|
$11,700
|
Total
|
$ 110,200
|
Total
|
$ 110,200
|
|
Taxes (34%)
|
3,978
|
|
|
|
|
|
Net income
|
$ 7,722
|
|
|
|
|
6. Assets and costs are proportional to sales. The company maintains a constant 25 percent dividend payout ratio and a constant debt—equity ratio.
7. What is the maximum increase in sales that can be sustained assuming no new equity is issued?
8. If the Hunter Corp. has an ROE of 10 and a payout ratio of 18 percent, what is its sustainable growth rate?
The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes):
Income Statement Balance Sheet
Sales $ 8,500 Assets $19,500 Debt $ 6,200
Costs 6,000 Equity 13,300
Net income $ 2,500 Total $19,500 Total $19,500
9. Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $10,115. What is the external financing needed?
10. Firm A and Firm B have debt—total asset ratios of 34 percent and 24 percent and returns on total assets of 10 percent and 15 percent, respectively. What is the return on equity for Firm A and Firm B?
The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. The current financial statements are shown here:
Income Statement
|
Sales
|
|
$ 30,800,000
|
|
Costs
|
|
26,503,400
|
|
Taxable income
|
|
$ 4,296,600
|
|
Taxes
|
|
1,503,810
|
|
Net income
|
|
$ 2,792,790
|
|
Dividends
|
$ 1,117,116
|
|
|
|
|
Addition to retained earnings
|
1,675,674
|
|
Balance Sheet
|
Assets
|
Liabilities and Equity
|
|
|
Current assets
|
$ 7,240,000
|
Short-term debt
|
$ 7,700,000
|
|
|
|
Long-term debt
|
3,696,000
|
|
Fixed assets
|
18,940,000
|
|
|
|
|
|
Common stock
|
$ 4,374,000
|
|
|
|
Accumulated retained earnings
|
10,410,000
|
|
|
|
Total equity
|
$ 14,784,000
|
|
Total assets
|
$ 26,180,000
|
Total liabilities and equity
|
$ 26,180,000
|
11. The Optical Scam Company has forecast a sales growth rate of 20 percent for next year. The current financial statements are shown here:
a. Calculate the external financing needed for next year.
b-1. Prepare the firm's pro forma balance sheet for next year.
b-2. Calculate the external financing needed.
c. Calculate the sustainable growth rate for the company based on the current financial statements.