Chap_4 - 5. Austin & Company has a debt ratio of 0.5, a...

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5.  Austin & Company has a debt ratio of 0.5, a total assets turnover ratio of 0.25, and a profit margin of 10%. The Board of Directors is unhappy with the current return on equity (ROE), and they think it could be doubled. This could be accomplished (1) by increasing the profit margin to 12% and (2) by increasing debt utilization. Total assets turnover will not change. What new debt ratio, along with the new 12% profit margin, would be required to double the ROE? B)  70% Correct Answer(s): B 6.  Lancaster Motors has total assets of $20 million. Its basic earning power is 25%, its return on assets (ROA) is 10%, and the company's tax rate is 40%. What is Lancaster's TIE ratio? E)  3.0 7.  SCENARIO 4-1 The balance sheet and income statement shown below are for Byrd Inc, and the data are to be used for the following questions. Note that the firm has no amortization charges, it does not lease any assets, and none of its debt must be retired during the next 5 years (notes payable will be rolled over).
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This note was uploaded on 11/05/2009 for the course BUS FIN 2100 taught by Professor Shmidl during the Spring '09 term at Laramie County Community College.

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Chap_4 - 5. Austin & Company has a debt ratio of 0.5, a...

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