Answered: Tapley Dental Supply Company has the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 14P

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Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Quintexs profits is so much greater than that of Trimax.
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 60%. 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 40%. 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 the firm vary under each policy?
apley Dental Supply Company has the following data:Net income: $240 Sales: $10,000 Total assets: $6,000Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2If Tapley could streamline operations, cut operating costs, and raise net income to $300, without affecting sales or the balance sheet (the additional profits will be paid out as dividends), by how much would its ROE increase? Group of answer choices 3.00% 3.50% 4.00% 4.25% 5.50%
A small company has the following data: Net income:   $240     Sales:      $10,000       Total assets:   $6,000 Debt ratio:      75%     TIE ratio: 2.0         Current ratio: 1.2 BEP ratio:     13.33% If the firm could streamline operations, cut operating costs, and raise net income to $300, without affecting sales or the balance sheet (the additional profits will be paid out as dividends), by how much would its ROE increase?
Spartans Inc. has three operating divisions: Alpha, Beta, and Gamma. Financial information for each division in displayed below.                                Alpha                 Beta                    Gamma Sales                   $525,000             $625,000               $475,000 Oper. Exp.          $465,000                   ?                     $437,000 Oper. Income       $60,000               $75,000                       ?       Inv. Assets                  ?                          ?                       $380,000 ROI                         0.2000                 0.1500                         ?       Sales Margin               ?                              ?                         0.0800 Cap. Turn                   ?                        1.25                      ?       Use the DuPont Equation to calculate the following values: Return on Investment =    Net Operating Income                       Avg. Invested Assets…
Spartans Inc. has three operating divisions: Alpha, Beta, and Gamma. Financial information for each division in displayed below.                                Alpha                 Beta                    Gamma Sales                   $525,000             $625,000               $475,000 Oper. Exp.          $465,000                   ?                     $437,000 Oper. Income       $60,000               $75,000                       ?       Inv. Assets                  ?                          ?                       $380,000 ROI                         0.2000                 0.1500                         ?       Sales Margin               ?                              ?                         0.0800 Cap. Turn                   ?                        1.25                      ?       Use the DuPont Equation to calculate the following values: Return on Investment =    Net Operating Income                       Avg. Invested Assets…
Wims Inc., has sales of $18.3 million total assts of $13.3 million and total debt of $4.1 million. The profit margin is 11 percent. a. What is the company's net income? b. What is the company's ROA? c. What is the company's ROE?
Barrera Corporation provides the following financial information: Minimum acceptable operating income $556,600 Average total assets $2,000,000 Operating income $708,000 Return on investment 35.4% Net sales $800,000 Calculate the target rate of return. (Round your answer to two decimal places.) A. 69.58% B. 88.50% C. 27.83% D. 35.40%
Orono Corp.'s sales last year were $465,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times interest earned (TIE) ratio? Select the correct answer. a. 9.70 b. 8.70 c. 9.20 d. 8.20 e. 10.20
The most recent financial statements for a firm are shown here: Income Statement Balance Sheet Sales $ 39,850 Assets $ 135,000 Debt $ 37,000 Costs 26,100 Equity 98,000 Taxable income $ 13,750 Total $ 135,000 Total $ 135,000 Taxes (20%) 2,750 Net income $ 11,000 Assets and costs are proportional to sales; debt and equity are not. A dividend of $6,600 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $43,835. What is the external financing needed?
Keller Cosmetics maintains an operating profit margin of 9.00% and a sales-to-assets ratio of 3.90. It has assets of $700,000 and equity of $500,000. Assume that interest payments are $50,000 and the tax rate is 30%. a. What is the return on assets? (Enter your answer as a percent rounded to 2 decimal places.) b. What is the return on equity? (Enter your answer as a percent rounded to 2 decimal places.) 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…

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