ROE ? Accounting Last year Rennie Industries had sales of $305,000,assets of $175,000, a profit margin of 5.3%, and anequity multiplier of 1.2. The CFO believes that thecompany could reduce its assets by $51,000 withoutaffecting either sales or costs. Had it reduced itsassets by this amount, and had the debt/assets ratio,sales, and costs remained constant, how much wouldthe ROE have changed?

Step 1:- Define Return On EquityReturn on Equity (or ROE) is financial leverage that calculates the…

Answered: Last year Rennie Industries had sales…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 10P

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Copmany A. has $2,491,100 in current assets and $859,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.2 (assuming all other current assets and current liabilities remain constant)?
Last year Rosenberg Corp. had $195, 000 of assets, S18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE? Question 5 options: 4.36% 4.57% 4.80% 5.04%
Lance Motors has current assets of $1.2 million. The company’s current ratio is 1.2, its quick ratio is 0.7, and its inventory turnover ratio is 4. The company would like to increase its inventory turnover ratio to the industry average, which is 5, without reducing its sales. Any reductions in inventory will be used to reduce the company’s current liabilities. What will be the company’s current ratio, assuming that it is successful in improving its inventory turnover ratio to 5?
Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE?
Last year Chantler Corp. had $200,000 of assets, $20,000 of net income, and a debt-to-total-assets ratio of 30%. Now suppose the new CFO convinces the president to increase the debt ratio to 45%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
Choose the correct letter of answer: In the current year, Company A had P15 Million in sales, while total fixed costs were held to P6 Million. The firm's total assets at year-end were P20 Million and the debt/equity ratio was calculated at 0.60. If the firm's EBIT is P3 Million, the interest on all debt is 9%, and the tax rate is 40%, what is the firm's return on equity? a. 11.16%b. 14.4%c. 18.6%d. 24.0%e. 28.5%
Spot Company’s balance sheet consists of the following: $790 million and $230 million. Its current after-tax cost of debt is 4% and its cost of equity is 8%. You have been analyzing various market factors and have estimated that the market value of its debt is currently $760 million and the market value of the equity is $690 million. Furthermore, you believe that given current market conditions and the existence of flotation costs, the marginal after-tax cost of debt would be 70 basis points higher than the existing after-tax cost of debt and the marginal cost of equity would be 130 basis points higher. What is the difference in the company's Weighted Average Cost of Capital (WACC) based on the market-based data and the book-value data? Subtract the book value WACC from the market value WACC and present your answer in percentage terms, rounded to decimal places (e.g., 1.23%].Round your answer to 2 decimal places. Please show all work including how to set up in excel. Note:- Do not…
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Last year, a company had $355,000 in assets, $26,275 of net income, and a debt-to-total-assets ratio of 44%. Now suppose the newly hired CFO convinces the president to increase the debt ratio to 58%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and therefore keep net income unchanged. What was the original return on equity (ROE) for this company?
Last year ABC Company had $200,000 of total assets, $25,746 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt-to-total assets ratio to 45%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE (that is, new ROE - old ROE)? Round your answer to two decimal places of percentage. (Hint: ROE = net income/common equity) Group of answer choices 4.39% 4.47% 4.42% 4.53% 4.50%
Last year, Thomas Co. had a profit margin of 10%, total assets turnover of 0.5, and a debt ratio of 20% (the company finances its assets with debt and common equity). This year, the company wats to double ROE. The CFO expects the total assets turnover will remain at 0.5, while the profit margin will increase enough to double ROE. Assume that the profit margin is increased to 15%, what debt ratio will the company need in order to double its ROE?

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