LongGone Corp. had total operating expenses of $84 million last year, including depreciation, and paid $5.2...

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LongGone Corp. had total operating expenses of $84 million last year, including depreciation, and paid $5.2...

LongGone Corp. had total operating expenses of $84 million last year, including depreciation, and paid $5.2 million in interest.

The company also paid out $43 million in dividends, while the addition to retained earnings increased equity by 90%.

The average tax rate was 34% and the average interest rate on the company's debt was 5%. The payout ratio was 30%.

a) What was equity at the end of the year, before the addition of retained earnings (in $ million)?

b) What was the equity multiplier?

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Answer 1

Answer #1

Dividends paid = $43 million

Payout ratio = 30%

Net Income = 43 million/30% = $143.3333 million

Addition to retained earnings = Net income – Dividends paid

= 143.3333 million – 43 million

= $100.3333 million

Hence, equity at the end of the year before addition of retained earnings = 100.3333 million/90% = $111.48144 million

b)Debt = 5.2 million/5% = 104 million

Equity Multiplier = Total Assets/Total Equity

= (111.48+104)/111.48

= 1.9329 times

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Answer 2

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LongGone Corp. had total operating expenses of $84 million last year, including depreciation, and paid $5.2...

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Add Answer to: LongGone Corp. had total operating expenses of $84 million last year, including depreciation, and paid $5.2...

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