The Wendt Corporation

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Chapter 2 problem 2-8, p. 79

The Wendt Corporation had $10.5 million of taxable income.

a. What is the company’s federal income tax bill for the year?

Answer: $10.5 x 0.35 = $525, 000.00

b. Assume the firm receives an additional $1 million of interest from some bonds it owns. What is the tax on this interest income?

Answer: $1,000,000.00 x 0.35 = $350,000.00

c. Now assume that Wendt does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the tax on this dividend income?

Answer: $1.000,000.00 x 0.105 = $105, 000.00

Chapter 3 problem, 3-6 p. 112 (Du Pont Analysis)

Donaldson & Sons has a ROA of 10%, a 2% profit margin, and a return on equity equal to 15%. What is the company’s total assets turnover?

Answer: ROA = 10%; PM = 2%; ROE = 15%
PM = NI/Sales = ROA = NI/TA = NI/Sales x Sales/TA NI/TA = PM x TATO
10% = 2% x TATO = TATO = 5

What is the firm’s equity multiplier?

Answer: ROE = PM x TATO x TA/E [Equity Multiplier] DU Pont= 15% = 2% x 5 x EM
15%/10% = EM = 1.5

Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial datat.

Debt Ratio: 50%
Quick Ratio: 0.80
Total Assets Turnover: 1.5
Days Sales Outstanding: 36.5 days (based upon 365 day year)
Gross Profit margin on sales: (Sales – Cost of goods sold)/Sales = 25% Inventory turnover ratio: 5.0

Balance Sheet

Cash$27,000Accounts Payable$90,000
AR$45,000Long-term debt$60,000
Inventories$67,500Common Stock$52,500
Fixed assets$169,500Retained Earnings$97,500
Total assets$300,000Total liabilities &$300,000
Equity

Sales$450,000Cost of goods sold $337,500
Answer: Asset turnover = Revenue / Total Assets...
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