CHAPTER 3-8 - NI / TA = .12 NI / TA = .11 NI = .12(TA) NI =...

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Unformatted text preview: NI / TA = .12 NI / TA = .11 NI = .12(TA) NI = .11(TA) Since ROE = NI / E, we can substitute the above equations into the ROE formula, which yields: ROE = .12(TA) / .65(TA) = .12 / .65 = 18.46% ROE = .11(TA) / .70 (TA) = .11 / .70 = 15.71% 23. This problem requires you to work backward through the income statement. First, recognize that Net income = (1 t)EBT. Plugging in the numbers given and solving for EBT, we get: EBT = $13,168 / (1 0.34) = $19,951.52 Now, we can add interest to EBT to get EBIT as follows: EBIT = EBT + Interest paid = $19,951.52 + 3,605 = $23,556.52 To get EBITD (earnings before interest, taxes, and depreciation), the numerator in the cash coverage ratio, add depreciation to EBIT: EBITD = EBIT + Depreciation = $23,556.52 + 2,382 = $25,938.52 Now, simply plug the numbers into the cash coverage ratio and calculate: Cash coverage ratio = EBITD / Interest = $25,938.52 / $3,605 = 7.20 times 24. The only ratio given which includes cost of goods sold is the inventory turnover ratio, so it is...
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This note was uploaded on 07/15/2010 for the course FINANCE 318 taught by Professor Spurlin during the Spring '08 term at LA Tech.

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