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Name: ________________________
PUID: ________________________
Purdue University
Krannert School of Management
MGMT 200 – Introductory Financial Accounting
Fall 2006
Exam 2 – October 25, 2006
This exam consists of 4 questions on 10 pages (excluding this cover page) for a total of
100 points.
Time allowed: 90 minutes.
Answer all questions.
To ensure full credit and to maximize partial credit, clearly show all supporting
calculations.
The exam is closed book.
A calculator is permitted.
GOOD LUCK
.
Question 1 (24 points)
________
Question 2 (28 points)
________
Question 3 (24 points)
________
Question 4 (24 points)
________
TOTAL (100 points)
________
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View Full Document Question 1. Return on Equity (24 points)
Robertson Corporation announced the following results for the year ended December 31,
2005:
2004
2005
Sales
$285,600
$510,840
Gross Profit
91,392
178,794
Net income
22,848
25,542
As at December 31,
2003
2004
2005
Total liabilities
87,130
88,870
117,530
Total stockholders’ equity
77,570
82,430
89,570
Required:
a.
For each year (2004 and 2005) compute the Return on Equity (ROE) and provide
a decomposition of the return on equity into its three component ratios: Net profit
margin, total asset turnover, and the financial leverage ratio.
ROE
=
Net Profit Margin
Asset turnover
Financial Leverage
2004:
____________ =
___________
x
___________
x
___________
2005:
____________ =
___________
x
___________
x
___________
Workings:
Question 1 continued over . . .
Mgmt 200 – Exam 2 – Fall 2006 – page 1
Question 1 continued
b.
The CEO of Robertson Corporation introduced a new low price strategy in early
2005 and states that the new strategy is highly successful as the sales grew from
$285,600 in 2004 to $510,840 in 2005, an increase of 78.9%. Based on your
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This note was uploaded on 11/22/2009 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University.
 Spring '08
 GREIGG
 Management

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