Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
3rd Edition
ISBN: 9780133507676
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 2, Problem 34P
Consider a retail firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total assets of $44 million, and a book value of equity of $18 million.
- What is the firm’s current
ROE ? - If the firm increased its net profit margin to 4%, what would its ROE be?
- If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit margin and without changing its assets or liabilities), what would its ROE be?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Consider a retail firm with a net profit margin of
3.15%, a total asset turnover of 1.82, total assets of $44.9 million, and a book value of equity of $17.4 million.
c. If, in addition, the firm increased its revenues by
16% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?
Consider a retail firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total assets of $44 million, and a book value of equity of $18 million.a. What is the firm’s current ROE?b. If the firm increased its net profit margin to 4%, what would its ROE be?c. If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit margin and without changing its assets or liabilities), what would its ROE be?
Consider a retail firm with a net profit margin of 3.36%, a total asset turnover of 1.88, total assets of $45.5 million, and a book value of equity of $17.6 million.
a. What is the firm's current ROE?
b. If the firm increased its net profit margin to 4.27%, what would be its ROE?
c. If, in addition, the firm increased its revenues by 18% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?
Chapter 2 Solutions
Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
Ch. 2 - Prob. 1CCCh. 2 - Prob. 2CCCh. 2 - What 's depreciation designed to capture?Ch. 2 - Prob. 4CCCh. 2 -
5. what do a firm’s earning measure?
Ch. 2 - 6. What is dilution?
Ch. 2 - Prob. 7CCCh. 2 - Prob. 8CCCh. 2 - Prob. 9CCCh. 2 - What information do the notes to financial...
Ch. 2 - Prob. 11CCCh. 2 - Prob. 12CCCh. 2 - Prob. 13CCCh. 2 - Prob. 14CCCh. 2 - Prob. 15CCCh. 2 - Prob. 16CCCh. 2 - Prob. 1CTCh. 2 - Prob. 2CTCh. 2 - Prob. 3CTCh. 2 - 4. What is the purpose of the income statement?
Ch. 2 - Prob. 5CTCh. 2 - Prob. 6CTCh. 2 - Prob. 7CTCh. 2 - Prob. 8CTCh. 2 - Prob. 9CTCh. 2 - Prob. 10CTCh. 2 - Prob. 11CTCh. 2 - Prob. 1DCCh. 2 - Prob. 2DCCh. 2 - Prob. 3DCCh. 2 - Prob. 4DCCh. 2 - Prob. 5DCCh. 2 - Prob. 6DCCh. 2 - Prob. 7DCCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Consider the following potential events that might...Ch. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15PCh. 2 - Prob. 16PCh. 2 - Prob. 17PCh. 2 - Prob. 18PCh. 2 - Prob. 19PCh. 2 - Prob. 20PCh. 2 - Prob. 21PCh. 2 - In fiscal year 2011, Starbucks Corporation (SBUX)...Ch. 2 - Local co. has sales of $10 million and cost of $6...Ch. 2 - 24. If Local Co., the company in Problem 23, had...Ch. 2 - Prob. 25PCh. 2 - Prob. 26PCh. 2 - Prob. 27PCh. 2 - Prob. 28PCh. 2 - Prob. 29PCh. 2 - Prob. 30PCh. 2 - Prob. 31PCh. 2 - Prob. 32PCh. 2 - Prob. 33PCh. 2 - Consider a retail firm with a net profit margin of...Ch. 2 - Prob. 35PCh. 2 - Prob. 36PCh. 2 - Prob. 37PCh. 2 - Prob. 38P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Consider a retail firm with a net profit margin of 3.71%, a total asset turnover of 1.78, total assets of $45.9 million, and a book value of equity of $18.5 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.60%, what would be its ROE? c. If, in addition, the firm increased its revenues by 21% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? a. What is the firm's current ROE? The firm's current ROE is %. (Round to one decimal place.)arrow_forwardConsider a retail firm with a net profit margin of 3.93 %, a total asset turnover of 1.87, total assets of $42.3 million, and a book value of equity of $18.6 million.a. What is the firm's current ROE?b. If the firm increased its net profit margin to 4.58 %, what would be its ROE?c. If, in addition, the firm increased its revenues by 19 % (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?arrow_forwardConsider a retail firm with a net profit margin of 3.94%, a total asset turnover of 1.84, total assets of $44.9 million, and a book value of equity of $18.3 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.83%, what would be its ROE? c. If, in addition, the firm increased its revenues by 23% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? **round to one decimal place**arrow_forward
- A company has a profit margin of 25%, an asset turnover ratio of 1.5, and an equity multiplier ratio of 1.65, both the tax burden and the interest burden are at 1, if the profit margin increases to 20% but the asset turnover ratio decreases to 1.3, what will be company’s new ROE?arrow_forwardLoreto Inc. has the following financial ratios: asset turnover = 2.40; net profit margin (i.e., net income/sales) = 5%; payout ratio = 30%; equity/assets = 0.40. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate?arrow_forwardYou've collected the following information about Groot, Inc.: Profit margin Total asset turnover Total debt ratio Payout ratio = 4.44% = 3.50 = .25 = 29% a. What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the ROA? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Sustainable growth rate b. ROA % 15.54 %arrow_forward
- The Stieben Company has determined that the following will be true next year: T(ratio of total assets of sales)=1 P(net profit of margin)=5% d(dividend pay out ratio)=50% L(debt equity ratio)=1 a) What is Stieben's sustainable growth rate in sales? b)Can Stieben's actual growth rate in sales be different from its sustainable growth rate? Why or why not? c) How can Stieben change its sustainable growth?arrow_forwardCalculate the ROE for a firm if it has a profit margin of 20%, an asset turnover of 2, and an equity multiplier of 1.4.arrow_forwardAn unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth rate of 5%. a. Is the firm's target growth rate consistent with it other goals? b. If not, how much does it need to increase asset turnover to achieve it goals? c. How much would it need to increase the profit margin instead?arrow_forward
- Assume that your firm has a return on assets of 14.7% , sales of $16,625,000, total assets of $4,750,000, a return on equity of 36.75%, an interest rate on total debt of 10 percent, and a tax rate of 40 percent. Given this information, determine the firm's basic earnings power. (Hint: you may need to work an income statement backwards to get EBIT, in which case you will need to determine the firm's net income or profit, as well as its interest expense on total debt.)arrow_forwardSuppose the growth rate of the firm's profit is 7 percent, the interest rate is 9 percent, and the current profits of the firm are $60 million. What is the value of the firm? A) $296 million. B) $3,863 million. C) $4,013 million. D) $5,607 million.arrow_forwardSaddie & Co.'s return on assets (ROA) for the current year was 6.23%. Which of the following is true if Saddie & Co. wishes to increase their ROA? The company should decrease asset turnover. O The company should increase the selling price of its goods or services. The company should increase the cost of its products. The company should increase the amount of assets it has.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
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
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License