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BF 722 Chapter 14 Problems

BF 722 Chapter 14 Problems - financial leverage income tax...

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BF 722 Chapter 14 Problems 8. Use the DuPont system and the following data to find return on equity. Leverage ratio 2.2 Total asset turnover 2.0 Net profit margin 5.5% Dividend payout ratio 31.8% CFA #5. The financial statements for Chicago Refrigerator Inc. are to be used to compute the following ratios for 2009: (See last page of problems for financials) a. Quick ratio b. Return on assets c. Return on common shareholders’ equity d. Earnings per share of common stock e. Profit margin f. Times interest earned g. Inventory turnover h. Leverage ratio CFA #8. The DuPont formula defines the net return on shareholders’ equity as a function of the following components: operating margin asset turnover interest burden
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Unformatted text preview: financial leverage income tax rate Using the data in the table: a. Calculate each of the five components listed above for 2006 and 2009, and calculate the ROE for 2006 and 2009, using all of the five components. b. Briefly discuss the impact of the changes in asset turnover and financial leverage on the change in ROE from 2006 to 2009. 2006 2009 Income statement data Revenues $542 $979 Operating income 38 76 Depn 3 9 Interest exp 3 Pretax income 32 67 Income taxes 13 37 Net income after tax $ 19 $ 30 Balance sheet data Fixed assets $ 41 $ 70 Total assets 245 291 Working capital 123 157 Total debt 16 Total SH equity $ 159 $ 220...
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