Please show completed table Imagine a corporation with $1,000,000 of assets and a debt ratio of...
Please show completed table
Imagine a corporation with $1,000,000 of assets and a debt ratio of 40%. ROE (return on equity) is expected to be 20% for the foreseeable future. Assuming the firm maintains the same amount of debt indefinitely (as opposed to keeping the same debt ratio), respond to the following questions. (12 marks)
b. If the firm doesn’t pay any dividends or re-purchase any shares, at what rate would the firm grow from year to year?
Complete the table.
|
Year |
Beginning balance, equity |
Net income |
Return on equity = net income /opening equity |
Dividends and/or repurchases |
Ending balance, equity |
Growth rate |
|
1 |
% |
0 |
% |
|||
|
2 |
% |
0 |
% |
|||
|
3 |
% |
0 |
% |
c. If the firm pays 50% of its earnings as dividends, at what rate would the firm grow from year to year?
Complete the table.
|
Year |
Beginning balance, equity |
Net income |
Return on equity = net income /opening equity |
Dividends |
Ending balance, equity |
Growth rate |
|
1 |
% |
% |
||||
|
2 |
% |
% |
||||
|
3 |
% |
% |
d. If the firm uses 80% of its earnings to re-purchase shares from its shareholders, at what rate would the firm grow from year to year?
Complete the table.
|
Year |
Beginning balance, equity |
Net income |
Return on equity = net income /opening equity |
Repurchases |
Ending balance, equity |
Growth rate |
|
1 |
% |
% |
||||
|
2 |
% |
% |
||||
|
3 |
% |
% |
e. If the firm pays 50% of its earnings as dividends and uses an additional 20% of its earnings to repurchase shares from its shareholders, at what rate would the firm grow from year to year?
Complete the table.
|
Year |
Beginning balance, equity |
Net income |
Return on equity = net income /opening equity |
Dividends |
Repur-chases |
Ending balance, equity |
Growth rate |
|
1 |
% |
% |
|||||
|
2 |
% |
% |
|||||
|
3 |
% |
% |
f. If you have done the calculations correctly in the tables above, you should have the same growth rate every year. How long could the company grow at this constant rate if all the given factors remained the same?
Homework Answers
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Please show completed table
Imagine a corporation with $1,000,000
of assets and a debt ratio of...
I need help with this question Imagine a corporation with $1,000,000 of assets and a debt...
I need help with this question Imagine a corporation with $1,000,000 of assets and a debt ratio of 40%. ROE (return on equity) is expected to be 20% for the foreseeable future. Assuming the firm maintains the same amount of debt indefinitely (as opposed to keeping the same debt ratio), respond to the following questions. (12 marks) a. If the firm doesn’t pay out any dividends or re-purchase any shares, what do you expect the firm’s earnings to be for the next...
can u please correct the wrong answers E1-4 Completing a Balance Sheet and Inferring Net Income...
can u please correct the wrong answers
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can u please correct the wrong answers
E1-4 Completing a Balance Sheet and Inferring Net Income (LO2, LO3] Ken Young and Kim Sherwood organized Reader Direct as a corporation, each contributed $66150 cash to start the business and received 5,400 shares. The store completed its first year of operations on December 31, 2017. On that date, the following financial items for the year were determined cash on hand and in the bank. $55,200, amounts due from customers from sales of...
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