PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 28, Problem 8PS
Financial ratios Sara Togas sells all its output to Federal Stores. The following table shows selected 2017 financial data, in millions, for the two firms:
The company’s tax rate is 35%. Calculate the sales-to-assets ratio, the operating profit margin, and the
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. The company’s new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5, without affecting either sales or net income. If inventories are sold off and not replaced so as to reduce the current ratio to 2.5, if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? b. Now suppose we wanted to take this problem and modify it for use on an exam—that is, to create a new problem that you have not seen to test yourknowledge of this type of problem. How would your answer change if we made the following changes: (1) We doubled all of the dollar amounts? (2) We stated that the target current ratio was 3.0? (3) We said that the company had 10,000 shares of…
Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms: Sales Interest Payment Net Income Assets at Start of Year Federal Stores $117 $21 $27 $67 Sara Togas 37 18 21 28.5 Assume tax rate is 35%.
a. Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for the two firms. (Do not round intermediate calculations. Round the sales-to-assets ratio answers to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.)
b. Now assume that the two companies merge. If the Federal continues to sell goods worth $117 million, how will the three ratios change? (Do not round intermediate calculations. Round the sales-to-assets ratio answer to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.)
Below is a major portion of the income statements of
KTA Inc. for 2020 and 2021:
Sales
Cost of Sales
Gross Margin
2020
P80,000
50,000
P30,000
2021
P97,200
72,000
P25,200
The firm sold its sole product for P8/unit during 2020.
Even though the sales units increased by 20% during 2021,
the gross margin declined. Disappointed with the results,
the owner asked for your assistance in analyzing the cause
of the gross margin decline.
A. 1.25%
B. (1.25%)
Percentage increase (decrease) in sales price.
C. (2.125%)
D. 2.125%
Chapter 28 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 28 - Prob. 1PSCh. 28 - Performance measures Keller Cosmetics maintains an...Ch. 28 - Performance measures Table 28.8 gives abbreviated...Ch. 28 - Performance measures Describe some alternative...Ch. 28 - Financial ratios Look again at Table 28.8, which...Ch. 28 - Prob. 6PSCh. 28 - Financial ratios True or false? a. A companys...Ch. 28 - Financial ratios Sara Togas sells all its output...Ch. 28 - Financial ratios As you can see, someone has...Ch. 28 - Prob. 10PS
Ch. 28 - Prob. 11PSCh. 28 - Prob. 12PSCh. 28 - Prob. 13PSCh. 28 - Prob. 14PSCh. 28 - Prob. 15PSCh. 28 - Prob. 16PSCh. 28 - Prob. 17PSCh. 28 - Prob. 18PSCh. 28 - Prob. 19PSCh. 28 - Prob. 20PSCh. 28 - Prob. 21PSCh. 28 - Prob. 22PSCh. 28 - Prob. 23PSCh. 28 - Prob. 25PSCh. 28 - Prob. 26PSCh. 28 - Prob. 27PS
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