Question

28. You obs observe that a timm's ROE is above the industry average but its profit margin and debt Wo are both below the industry average. Which of the following statements is CORREC Its total assets turnover must equal the industry average. b. Its total assets turnover must be above the industry average. c. Its total assets turnover must be below the industry average. d. None of the above is correct. 29. A firm that has an equity multiplier of 4.0 will have a debt-to-capital ratio of a. 4.00 b. 1.00 c. 0.75 d. 3.00 urn on equity (ROE), 30. Assume Meyer Corporation is 100% equity financed, Calculate the return on equity (R given the following information: (Hint TE-TA. Find NI and TA) Earnings before taxes $1,500 Sales $5,000 Dividend payout ratio Total assets turnover 2.0 Tax rate 30% 60% a. 25% b. 30% c. 35% d. 42% 31. The Wilson Corporation has the following results: Sales/Total assets 2.0x Return on assets (ROA) 4.0% Return on equity (ROE) 6.0% What is Wilson's profit margin and debt ratio? (Hint: Basic and extended Du Pont) a. 2%; 0.67 b. 4%; 0.33 c. 4%; 0.67 d. 2%; 0.33 - Anta are to be used

Answer 1

28 .ROE = Net profit Margin * Asset Turnover * Debt Ratio

c. The total asset turnover is higher than industry average

29. Debt ratio = 1- ( 1 / Equity multiplier )

= 1- ( 1/ 4)

c. = 0.75

1. EBT 1500

Tax 450

Net profit = 1050

Net profit margin = 1050/5000 = 21%

30. ROE = Net profit Margin * Asset Turnover * Debt Ratio

= 21% * 2 = 42%

d. 42%

31. ROA = Net income / Revenue * Revenue/Total Asset

4% = Net income / Revenue * 2

Profit Margin = 2%

d. 2%, 0.33