A company has $20 billion of sales and $1 billion of net income. Its total assets are $10 billion. The company’s total assets equal total invested capital, and its capital consists of half debt and half common equity. The firm’s interest rate is 5% and its tax rate is 40%. a. What is its profit margin? b. What is its ROA? c. What is its ROE? d. What is its ROIC? e. Would this firm’s ROA increase if it used less leverage? (The size of the firm does not change.)
A company has $20 billion of sales and $1 billion of net income. Its total assets are $10 billion. The company’s total assets equal total invested capital, and its capital consists of half debt and half common equity. The firm’s interest rate is 5% and its tax rate is 40%. a. What is its profit margin? b. What is its ROA? c. What is its ROE? d. What is its ROIC? e. Would this firm’s ROA increase if it used less leverage? (The size of the firm does not change.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company has $20 billion of sales and $1 billion of net income. Its total assets are $10 billion. The
company’s total assets equal total invested capital, and its capital consists of half debt and half
common equity. The firm’s interest rate is 5% and its tax rate is 40%.
a. What is its profit margin?
b. What is its
c. What is its
d. What is its
e. Would this firm’s ROA increase if it used less leverage? (The size of the firm does not
change.)
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