Last year, K9 WebbWear, Inc. reported an ROE of 22 percent. The firm’s debt ratio was 50 percent, sales were $24 million, and the capital intensity was 1.25 times. This year, K9 WebbWear plans to increase its debt ratio to 60 percent. The change will not affect sales or total assets, however, it will reduce the firm’s profit margin to 15 percent.Calculate the net income and profit margin for K9 WebbWear last year. (Enter your answer in millions of dollars rounded to 2 decimal places. Round your percentage answer to 2 decimal places.)Net Income (last year) = ________.__millionsProfit margin (last year) = _______.__ %By how much will the change in K9 WebbWear’s debt ratio affect its ROE?ROE (this year) will = _________ _______ %

Total assets can be calculated as shown below.

Answered: Last year, K9 WebbWear, Inc. reported…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...

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Last year, K9 WebbWear, Inc. reported an ROE of 22 percent. The firm’s debt ratio was 50 percent, sales were $24 million, and the capital intensity was 1.25 times. This year, K9 WebbWear plans to increase its debt ratio to 60 percent. The change will not affect sales or total assets, however, it will reduce the firm’s profit margin to 15 percent.

Calculate the net income and profit margin for K9 WebbWear last year. (Enter your answer in millions of dollars rounded to 2 decimal places. Round your percentage answer to 2 decimal places.)
- Net Income (last year) = ________.__millions
- Profit margin (last year) = _______.__ %
By how much will the change in K9 WebbWear’s debt ratio affect its ROE?
- ROE (this year) will = _________ _______ %

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