We can solve for Return on Equity based on the percentages of Total Assets you ha ROE = Net Income / Total Equity ROE = Net Income as % of Total Assets / Total Equity as % of Total Assets Now you need to put this into a formula below
hese are the right formulas eturns on total assets calculations. Round al Assets ratio because we IF YOU WILL CHANGE THE VALUES GIVEN IN THIS PROBLEM YOU WILL BE OBSERVE THE IMPACT OF HIGH LEVELS OF DEBT ON THE FIRM RETURN O YOU CAN ALSO OBSERVE THE IMPACT OF HIGH (or low) RETURNS ON ASS FIRM'S RETURN ON EQUITY. TRY FIRM A WITH DEBT TO ASSETS = 25% AND ROA = 12% AND FIRM B WITH DEBT TO ASSETS = 75% AND ROA = 12% SEE WHAT HAPPENS!! THIS SI AN EXAMPLE OF A FIRM WITH HIGH LEVERAGE (use of debt) AND I TO EARN HIGH RETURNS, BUT THERE IS ALWAYS A CATCH. THE FIRM MUS PAY OFF THE HIGH INTEREST THAT GOES WITH THIS HIGH LEVEL OF DEBT FACE BANKRUPTCY. HIGH DEBT MEAN HIGH RISK, SO THE FIRM MUST MA HIGH RETURNS TO COMPENSATE FOR THE HIGH RISK. HERE I HAVE ADDED A REFERENCE TO THE CALCULATIONS BELOW SO THE ANSWER YOU WILL NEED FOR QUIZ IS RIGHT UNDER THE QUESTION. AFTER YOU HAVE ALL OF THE CALCULATIONS IN PLACE ALL YOU ON THE ACTUAL QUIZ IS CHANGE THE DATA INPUT VARIABLES AND READ OUT THE ANSWER.
e as percentage of Total ave developed above.
ABLE TO ON EQUITY. SETS AND THE ITS POTENTIAL ST BE ABLE TO T OR IT WILL AKE THESE R THE ACTUAL U WILL NEED TO DO
Problem 3-13 Calculating EFN The Optical Scam Company has forecast a 20 percent sales growth rate for next year. The current financial statements are shown here: DATA INPUTS Sales $30,400,000 Assets Liabilities & Equi Costs $26,720,000 Total Current Assets $7,200,000 Short-term liabilities Taxable income $3,680,000 Long-term debt Taxes $1,288,000 Fixed assets $17,600,000 Net income $2,392,000 Common stock Retained earnings Dividends $956,800 Total Equity Add. to retained earnings $1,435,200 Total assets $24,800,000 Total liabilities & equity Dividend payout ratio 40% = Dividend / Net Income Sales increase 20% Operating capacity 100% In problems using the EFN estimating formula Operating Capacity is alw Tax rate 35% = Taxes paid / Taxable Income Using the equation from the chapter, calculate the external funds needed for next year. (Do not include the dollar sign ($). Roun answer to the nearest whole dollar amount. (e.g., 1,234,567)) YOU WILL NEED TO ENTER ONLY THE VALUES HIGHLIGHTED IN YELLOW.
Assets / Sales = 81.58% = Total Assets / Sales Δ Sales = $ Change in Sales = $6,080,000 = % Sales Increase x Sales Debt / Sales = 21.05% = Short-term Liabilities / Sales PM = Profit Margin = 7.87% = Net Income / Sales Projected Sales = $36,480,000 = Sales + $ Change in Sales (1 - d) = Plowback Ratio = 60.00% = 1 - Dividend payout ratio EFN = $1,957,760 = [ (Assets/Sales) x $ Change in Sales ] − [ (Short-term Liabilities / Sales) x $
ROE = 0.1758823529 = Net Income / Total Equity b = Plowback Ratio = 60.00% = 1 - Dividend payout ratio SUSTAINABLE GROWTH RATE = 11.80% = (ROE x Plowback Ratio) / (1 - (ROE x Plowback Ratio)) Can Optical Scam eliminate the need for external funds by changing its dividend policy?
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