Net incomeand ProfitmarginBy how much will the change in K9 WebbWear's debt ratio affect its ROE?ROE (this year) willChanges ofROE% Last year, K9 WebbWear, Incorporated reported an ROE of 16 percent. The firm's debt ratio was 55 percent, sales were $20 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 notaffect sales or total assets, however, it will reduce the firm's profit margin to 10 percent.Calculate the net income and profit margin for K9 WebbWear last year.By how much will the change in K9 WebbWear's debt ratio affect its ROE?Complete this question by entering your answers in the tabs below.Net incomeand ProfitmarginChanges ofROECalculate the net income and profit margin for K9 WebbWear last year.Note: Enter your answer in millions of dollars rounded to 2 decimal places. Round your percentage answer to 2 decimalplaces.Net income (last year)Profit margin (last year)million%

Last year ROE=16%Sales=$20 millionDebt ratio=55%Capital Instinsity=1.25 timesCurrent year progit…

Answered: Last year, K9 Webbwear, Incorporated…

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

See similar textbooks

Similar questions

XYZ anticipates earning $1,000,000 and paying $200,000 in dividends this year. XYZ's capital structure is 20% debt and 80% equity and its tax rate is 35%. Compute the equity breakpoint to the nearest dollar. Your Answer:
Plank’s Plants had net income of $10,000 on sales of $40,000 last year. The firm paid a dividend of $2,300. Total assets were $700,000, of which $350,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
It was reported last week that Blue Bell Enterprises earned $18.5 million this year. The report also stated that the firm’s return on equity is 11 percent. The firm retains 80 percent of its earnings. What will next year's earnings be? Round to the nearest whole dollar.
Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 50 percent and the probability of a recession is 50 percent. It is projected that the company will generate a total cash flow of $126 million in a boom year and $78 million in a recession. The company's required debt payment at the end of the year is $75 million. The market value of the company's outstanding debt is $58 million. The company pays no taxes. What is the expected rate of return on the company's debt? O 34.5% O O 29.3% O 100%
Mars Corporation is interested in estimating the expected rate of sales growth sustainability and additional financing needed to support improvements fast sales next year. Last year, revenue was $5.5 million; net profit is $500,000; investment in assets is $2,500,000; payables and accruals are $1,000,000; and shareholder equity at the end of the year is $1,500,000 (that is, the equity at the beginning of the year of $1,000,000 plus retained earnings of $500,000). The business does not pay dividends and does not expect to pay dividends in the future. a.Compute forecasted sales and changes in sales first. What is your estimate of the funds additions needed next year to support the upgrade sales by 20 percent? Also include the interpretation of the results of the calculations
XYZ anticipates earning $1,500,000 and paying $300,000 in dividends this year. XYZ's capital structure is 20% debt and 80% equity and its tax rate is 35%. Compute the equity breakpoint to the nearest dollar. Your Answer:
Merton Analytics is considering changes in its working capital policies to improve its cash ﬂow cycle. Merton’s sales last year were $4,250,000 (all on credit), and its net proﬁt margin was 7%. Its inventory turnover was 7.5 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $2,200,000. The ﬁrm had ﬁxed assets totaling $585,000. Merton’s payables deferral period is 42 days. Calculate Merton’s cash conversion cycle. Assuming Merton holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose Merton’s managers believe the annual inventory turnover can be raised to 9.5 times without affecting sales. What would Merton’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.5 for the year?
Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 70 percent and the probability of a recession is 30 percent. It is projected that the company will generate a total cash flow of $186 million in a boom year and $77 million in a recession. The company's required debt payment at the end of the year is $111 million. The market value of the company's outstanding debt is $84 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the company's debt? (Do not round intermediate calculations and…
Derry Corporation is expected to have an EBIT of $21 million next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $165,000, $80,000, and $120,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $10.4 million in debt and 750,000 shares outstanding. You believe that in Year 5 sales will be $23.7 million and the appropriate price-sales ratio is 2.9. The company's WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price
Tomey Supply Company’s financial statements for the most recent fiscal year are shown below. The company projects that sales will increase by 11 percent next year. Assume that all costs and assets increase directly with sales. The company has a constant 35 percent dividend payout ratio and has no plans to issue new equity. Any financing needed will be raised through the sale of long-term debt. Prepare pro forma financial statements for the coming year based on this information, and calculate the EFN for Tomey. Tomey Supply Company Income Statement and Balance Sheet Income Statement Balance Sheet Revenues $1,768,121 Assets Costs 1,116,487 Current Assets $280,754 EBT 651,634 Net Fixed Assets 713,655 Taxes (35%) 228,072 Total assets $994,409 Net Income $423,562 Liabilities and Equity: Current Liabilities $167,326 Long-term debt 319,456 Common Stock 200,000 Retained Earnings 307,627 Total liabilities…
Esther’s Egg Farm is constructing its pro forma financial statements for this year. At year end, assets were $400,000 and accounts payable (the only current liabilities account) were $125,000. Last year’s sales were $500,000. Esther’s expects to grow by 15 percent this year. Assets and accounts payable are expected to grow proportionally to sales. Common stock currently equals $140,000, and retained earnings are $98,000. Esther’s plans to sell $15,000 of new common stock this year. The firm’s profit margin on sales is 6 percent, and 40 percent of earnings will be paid out as dividends. How much new long-term debt financing will Esther’s need this year to finance its expected growth? Esther’s is currently operating at full capacity.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS