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
Total liabilities &
Cost of goods sold
Answer: Asset turnover = Revenue / Total Assets...
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