Question

Hello, please advise, thank you

#1 For the problem below: For Profit margin I got 2% and it was right but debt to capital ratio I put 50% it was wrong and 1.63 was also wrong.

Assume the following relationships for the Caulder Corp.: Sales/Total assets 2x Return on assets (ROA) 4.0% Return on equity (ROE) 13.0% Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places. Profit margin: Debt-to-capital ratio:

#2 I was lost here

#3 Is this right:

Answer 1

Question-1:

Sales/Total Assets (Asset Turnover Ratio) = 2

Return on Assets = 4%

Return on Equity = 13%

.

Caulder’s profit margin = Return on Assets / {Sales/Total Assets (Asset Turnover Ratio) }

= 4%/2

= 2%

.

Debt to capital ratio = 1 – (Return on assets/Return on equity)

= 1 – (4/13)

= 1 – 0.307692

= 0.692308

= 0.69 …(Rounded off to two decimal place)

.

.

Question-2:

Return on Assets Ratio = Profit Margin * Total Asset Turnover

8% = 5.5% * Total Asset Turnover

Total Asset Turnover = 8/5.5

Total Asset Turnover = 1.4545

Total Asset Turnover = 1.45..(Rounded off to two decimal place)

.

Equity Multiplier = ROE/ROA

= 17%/8%

= 2.125%

= 2.13..(Rounded off to two decimal place)

.

.

Question-3:

EBIT (130,560+512,000)	642,560
Interest Expense	130,560
EBT - (384,000)/(1-Tax Rate)	512,000
Tax @ 25%	128,000
Net Income	384,000
Net Income	384,000
ROA	8%
Total Assets (384,000/8%)	4,800,000
NOPAT - EBIT*(1-TaxRate)	481,920
(642,560*0.75)

.

Basic Earning Power = EBIT/Total Assets

= 642,560/4800,000

= 0.133867

= 13.39%

.

Total Invested Capital = Total Assets-Accounts Payable & Accruals

= 48,00,000 – 10,00,000

= $38,00,000

.

ROE = Net Income /Total Invested Capital *60%

= 384,000/38,00,000*60%

= 384,000/22,80,000

= 0.1684

= 16.84%

.

ROIC = NOPAT /Total Invested Capital

= 481,920/38,00,000

= 12.68%