EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 14, Problem 15P
Summary Introduction
To Compute: The negative value of earnings per share.
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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 40%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies:
(1)
a restricted policy in which current assets are 45% of projected sales,
(2)
a moderate policy with 50% of sales tied up in current assets, and
(3)
a relaxed policy requiring current assets of 60% of sales.
Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 25%.
What is the expected return on equity under each current asset level?
In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not?
How would the overall risk of…
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to
determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt
ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a
restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a
relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is
35%,
a. What is the expected return on equity under each current asset level? Round your answers to two decimal places.
Tight policy
%
76.77
Moderate policy
Relaxed policy
9.04
5.05
1%
b. In this problem, we have assumed that the level of expected sales is…
(Using common-size financial statements) The S&H Construction Company expects to have total sales next year
totaling $15,300,000. In addition, the firm pays taxes at 35 percent and will owe $283,000 in interest expense. Based
on last year's operations the firm's management predicts that its cost of goods sold will be 55 percent of sales and
operating expenses will total 33 percent. What is your estimate of the firm's net income (after taxes) for the coming
year?
Complete the pro-forma income statement below: (Round to the nearest dollar.)
Pro-Forma Income Statement
Sales
Cost of goods sold
Gross profit
Operating expenses
Net operating income
Interest expense
Earnings before taxes
Taxes
Net income
$
$
$
$
$
Chapter 14 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 14.A - Prob. 1QTDCh. 14.A - Prob. 2QTDCh. 14.A - Prob. 3QTDCh. 14.A - Prob. 2PCh. 14.A - Prob. 3PCh. 14.A - Prob. 4PCh. 14.A - Prob. 5PCh. 14.A - Prob. 6PCh. 14.A - Prob. 7PCh. 14.A - Prob. 8P
Ch. 14 - Prob. 1QTDCh. 14 - Prob. 2QTDCh. 14 - Prob. 3QTDCh. 14 - Prob. 4QTDCh. 14 - Prob. 5QTDCh. 14 - Prob. 6QTDCh. 14 - Prob. 7QTDCh. 14 - Prob. 8QTDCh. 14 - Prob. 9QTDCh. 14 - Prob. 10QTDCh. 14 - Prob. 11QTDCh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - Prob. 4PCh. 14 - Prob. 5PCh. 14 - Prob. 6PCh. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Prob. 9PCh. 14 - Prob. 10PCh. 14 - Prob. 11PCh. 14 - Prob. 12PCh. 14 - Prob. 13PCh. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Prob. 16PCh. 14 - Prob. 17PCh. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24PCh. 14 - Prob. 25PCh. 14 - Prob. 26PCh. 14 - Prob. 27PCh. 14 - Prob. 28PCh. 14 - Prob. 29PCh. 14 - Prob. 30PCh. 14 - Prob. 31PCh. 14 - Prob. 32PCh. 14 - Prob. 33PCh. 14 - Prob. 34P
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