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CHAPTER%2012%20SOLUTIONS%202008

# CHAPTER%2012%20SOLUTIONS%202008 - SOLUTIONS TO SUGGESTED...

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SOLUTIONS TO SUGGESTED PROBLEMS CHAPTER 12 12.15 a) First Foremost Net sales \$225,000 100.0% \$1,300,000 100.0% Cost of goods sold (135,000) (60.0)% (728,000) (56.0)% Operating expenses (45,500) (20.2)% (312,000) (24.0)% Interest expense (2,250) (1.0)% (25,200) (1.94)% Income tax expense (11,600) (5.2)% (47,000) (3.61)% Net income \$30,650 13.6% \$187,800 14.45% b) Total assets Total shareholders’ equity First – 2008 \$390,000 \$310,000 – 2007 340,000 248,000 Average 365,000 279,000 Foremost – 2008 \$1,700,000 \$1,130,000 - 2007 1,470,000 950,000 Average 1,585,000 1,040,000 First Foremost ROA =\$30,650+2,250(1-0.2745) = \$187,800+25,200(1-0.2002) \$365,000 \$1,585,000 ROA = 8.8% = 13.1% ROE = \$30,650/\$279,000 = \$187,800/\$1,040,000 = 11.0% = 18.1% c) All performance measures indicate Foremost is more profitable than First. Its profit margin is 4% higher, its ROA is 4.3% higher and ROE is 7.1% higher. d) Two major reasons for Foremost’s better performance are its lower cost of goods sold (56% of net sales versus 60%) resulting in higher gross margin percentage of 44%, and a relatively higher asset turnover ratio. Foremost had an asset turnover ratio of 0.82 while First’s was only 0.62.

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12.16 a) Cool Brewery Northern Beer Net sales \$206,700 100.0% \$ 40,500 100.0% Cost of goods sold (100,500) (48.6)% (15,300) (37.8)% Operating expenses (85,400) (41.3)% (17,190) (42.4)% Interest expense (7,800) (3.8)% (370) (0.91)% Income tax expense (4,700) (2.3)% (1,130) (2.8)% Net income \$ 8,300 4.0% \$ 6,510 16.1% b) Total assets Total shareholders’ equity Cool Brewery – 2008 \$308,000 \$132,200 – 2007 300,100 121,800 Average 304,050 127,000 Northern Beer– 2008 \$41,800 \$29,900 – 2007 40,600 29,200 Average 41,200 29,550 Cool Brewery Northern Beer ROA = \$8,300 + [7,800 x (1-0.3615)] \$6,510 + [370 x (1-0.1479)] \$304,050 \$41,200 ROA = 4.5% = 16.6% ROE = \$8,300/\$127,000 = \$6,510/\$29,550 = 6.5% = 22.0% c)
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CHAPTER%2012%20SOLUTIONS%202008 - SOLUTIONS TO SUGGESTED...

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