week 1 assignment finanace

week 1 assignment finanace - 14.5 Pre-renovation Analysis...

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PROBLEM 4-10 FINANCIAL RATIOS-INVESTMENT ANALYSIS DATA Current Assets $500,000 Net Fixed Assets 1,500,000 Total Assets 2,000,000 Liabilities 1,000,000 Owners' Equity 1,000,000 Total Liabilities and Owners' Equity $2,000,000 Income Statement Sales $4,500,000 Less: COGS 3,500,000 Gross Profit 1,000,000 Less: Oper Exp 500,000 Net Oper Income 500,000 Less: Interest Exp 100,000 EBT 400,000 Less: Taxes 200,000 Net Income $200,000 A) Total asset turnover = 2.25 Operating profit margin = 11.11% Operating return on assets = 25.0% B) 3,000,000 Present debt ratio 0.50 New Oper profit margin 13.0% New Operating return on assets = 19.5% C) Interest expense rises by: 50,000 Post: Pre: NOI $585,000 $500,000 Less: Interest 150,000 100,000 EBT 435,000 400,000 Less: Taxes (50%) 217,500 200,000 Net Inc Available to Common $217,500 $200,000
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Post Renovation Analysis: Return on Common Equity =
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Unformatted text preview: 14.5% Pre-renovation Analysis: Return on Common Equity = 20.0% a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets. b. Salco plans to renovate one of its plants, which will require an added investment in plant and equipment of $1 million. The firm will maintain its present debt ratoi of .5 when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13 percent. What will be the new operating return on assets for Salco after the plant's renovation? c. Given that the plant renovation in part b occurs and Salco's interest expense rises by $50,000 per year, what will be the return earned on the common stockholders, investments? Compare this rate of return with that earned befor the renovation....
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week 1 assignment finanace - 14.5 Pre-renovation Analysis...

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