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Homework answers / question archive / 1) If a firm's net profit margin is 11

1) If a firm's net profit margin is 11

Finance

1) If a firm's net profit margin is 11.2%, asset turnover is 1.8, and the debt ratio is 0.7, what is the firm's return on equity (ROE)?

2) a company uses a residual dividend policy. a debt equity ratio of 1.50 is considered optimal. earnings for the period just ended were 2300 and a dividend of 1200 was paid. what were total capital outlays?

3)  Marino Company has provided the following information:

Net sales, $814,000

Net income, $37,000

Average total assets, $370,000

What is Marino's return on assets ?

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1) Computation of the return on equity (ROE):-

Net profit margin = Net income / Sales

Net income = 11.2% * Sales

Asset turnover = Sales / Assets

1.8 = Sales / Assets

Sales = 1.8 * Assets

Debt ratio = Debt / Assets

0.7 = Debt / Assets

Debt = 0.7 * Assets

Assets = Debt + Equity

Equity = Assets - (0.7 * Assets)

= 0.3 * Assets

ROE = Net income / Equity

= (11.2% * Sales) / (0.3 * Assets)

= (11.2% * 1.8 * Assets) / (0.3 * Assets)

= 67.2%

 

2) Computation of the total capital outlay:-

Equity portion of capital outlays = Total earnings - Dividends 

= 2300 - 1200

= 1100

New debt = Equity portion * Debt equity ratio

= 1100 * 1.50

= 1650

Total capital outlay = Equity portion of capital outlays + New debt 

= 1100 + 1650

= 2750

 

3) Computation of the Marino's return on assets:-

Return on assets (ROA) = Net income / Average total assets

= $37,000 / $370,000

= 10%