Question

Ch 04: End-of-Chapter Problems - Analysis of Financial Statements <Back to Assignment Attempts: 0 Keep the Highest: 0/1 9. Problem 4.14 Click here to read the eBook: Profitability Ratios Problem Walk-Through RETURN ON EQUITY Pacific Packaging's ROE last year was only 2%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 55%, which will result in annual interest charges of $363,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $924,000 on sales of $11,000,000, and it expects to have a total assets turnover ratio of 1.6. Under these conditions, the tax rate will be 40%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places. % Grade It Now Save & Continue Continue without saying

Answer 1

B D =336600/11000000 ПЕВІТ A 1 Profit Margin (Profit/Sales) 2 Total Asset Turnover (Sales/Assets) 3 Equity Multiplier (Assets/Equity) 3.06% 1.60 E F $ 924,000 Less: Interest $ 363,000 EBT $ 561,000 2.22 =1/(1-55%) 4 Return on equity (ROE) 10.88% =+B1*B2*B3 Less: Taxes Net income $ 224,400 $336,600 5

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