am. 121. Assume that your company recently reported net income of $2,200,000, a tax rateof 40 percent, had interest expense of $480,000 on $12,000,000 of debt, and areturn on assets (ROA) of 7 percent. Also assume that the firm's board of directorswould like to increase sales and decrease cost of goods sold, resulting in a 100percent increase in its basic earnings power (BEP) ratio. The boards also expectsthe tax rate and cost of debt to remain the same. The board will not change theamount of debt or equity outstanding.Given this information, determine what the company's new return on equity will beif the firm can double its basic earnings power ratio.O 22.30%O 24.93%O22.83%23.44%O24.13%

It is the process of making decisions that involve the management of costs in order to achieve…

Answered: Assume that your company recently…

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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you have developed the following pro forma income statement for your? corporation: it represents the most recent? year’s operations, which ended yesterday. a.if sales should increase by 25 ?percent, by what percent would earnings before interest and taxes and net income? increase? b.if sales should decrease by 25 ?percent, by what percent would earnings before interest and taxes and net income? decrease? q c.if the firm were to reduce its reliance on debt financing such that interest expense were cut in? half, how would this affect your answers to parts a and b?? sales $ 45,750,000 variable costs -22,800,000 revenue before fixed costs $ 22,950,000 fixed costs -9,200,000 ebit $ 13,750,000 interest expense -1,350,000 earnings before taxes $ 12,400,000 taxes (50%) -6,200,000 net income $ 6,200,000
The financial manager for "ERR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'ERR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholder's wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information:Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. 2- Calculate the daily NPV of the proposed terms. 3- Based on your own calculations, what is your recommendation? Why? 4- Calculate the NPVCCP of the present terms. Interpret. 5- Calculate the ANPVCCP-aggregate of the Company. Interpret.
Show as much detail as possible. Addition to retained earnings: Northwood, Inc., has revenue of $455,316, costs of $316,487, and a tax rate of 31 percent. If the firm pays out 45 percent of its earnings as dividends every year, how much earnings are retained and what is the firm's retention ratio?
Consider the following income statement for Jordan Corporation:Jordan CorporationIncome Statement Sales₱ 38,000 Costs18,400 Taxable Income₱19,600 Taxes (34%)6,664 Net Income₱12,936 Dividends₱5,200 Addition to Retained Earnings7,736 A 25% growth rate in sales is projected. Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant. What is the projected addition to retained earnings?
Assume that a firm has Sales of $25,000,000, total assets of $20,000,000, current assets of $8,000,000, spontaneous liabilities of $3,000,000, a profit margin of 3.825 percent, a tax rate of 40%, and a dividend payout rate of 60 percent. Also assume that sales are expected to increase to $28,000,000 for the coming year and that the firm will not need to increase its fixed assets at this level of sales. Given this information, and using the equation approach, determine the additional funds needed for the coming year. O $180,000 O $171,600 O $177,200 O $168,800 O $174,400
Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 46,100 Assets $ 24,300 Debt $ 6,300 Costs 39,630 Equity 18,000 Net income $ 6,470 Total $ 24,300 Total $ 24,300 The company has predicted a sales increase of 10 percent. It has predicted that every item on the balance sheet will increase by 10 percent as well. Create the pro forma statements and reconcile them. (Input all answers as positive values. Do not round intermediate calculations.) Pro forma income statement Pro forma balance sheet Sales $50,710 Assets $26,730 Debt ? Costs 43,593 Equity ? Net income $7,117 Total $26,730 Total $26,730 What is the plug variable? The plug variable is dividends paid in the amount of ?????? .
Consider the following simplified financial statements for the Wesney Corporation (assuming no income taxes): Income Statement Sales Costs $ 30,900 23,060 Net income $7,840 Total Assets Sales Costs Net income Pro forma income statement Balance Sheet $ Debt 25,450 Equity The plug variable is $ 25,450 The company has predicted a sales increase of 12 percent. It has predicted that every item on the balance sheet will increase by 12 percent as well. Assets Create the pro forma statements and reconcile them. (Input all answers as positive values. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Total Total Assets $ 6,950 18,500 $ 25,450 in the amount of What is the plug variable? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Pro forma balance sheet Debt Equity Total Debt and Equity
is currently operating at maximum capacity. The firm has a net income of $2,250, total assets of $24,600, long-term debt of $9,477.50, accounts payable of $2,700, dividends of $900, and total equity of $12,100. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent? O -$467 $367 O $0 $108 -$323
Use the information below to build a properly formatted income statement. A: The firm has 25,280,000 shares outstanding and its earnings per share is $2.40. Calculate Net Income. B: The firm's corporate tax rate is 40%. Calculate the firm's EBT. C: After completing A and B above, what is the firm's corporate tax expense? D: The firm's operating income is 1.80 times its Net Income. Determine the firm's EBIT. E: Given your answer to D, calculate the firm's Interest Expense. F: After completing the above: Gross Profit is 18.00 times its Interest Expense. Calculate Gross Profit. G: Finally, the firm's Revenue is 1.50 times its EBIT. Calculate the firm's Revenue. INSTRUCTIONS: Write ratios involving dollar amounts out to the penny, with no dollar sign: 1000.00. All ratios and interest rates should be calculated as follows: 11.28 (no percent sign) For this problem: Net Income = Earnings before Taxes = Тах еxpens 3 Earnings before Taxes & Interest = Interest expense = Gross profit = Revenue =
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 Costs Other expenses Earnings before interest and taxes Interest paid Taxable income Taxes (23%) Net Income Dividends $ 38,340 Addition to retained earnings 40,816 Current assets Cash Accounts receivable Inventory Total Total assets $ 25,040 34,440 71,240 $ 130,720 Fixed assets Net plant and equipment $ 218,000 $ 761,000 617,000 28,000 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets $ 116,000 13,200 $ 102,800 23,644 $ 79,156 Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common…
JBC Inc. has the following information reported by its chief accountant for the current year: Sales Operating income Total assets Current liabilities Target rate of return Corporate tax rate WACC $4,500,000 $505,000 $2,500,000 $150,000 18% 35% 13% How much is stakeholders' expected return in dollars? O a) $55,500 O b) $22,750 c) $305,500 d) $305,500
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…

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