Question

All of the following questions are open-ended problems. You must compute an answer for every problem. For percentage answers, calculate your answer as a percent rounded to 2 decimal places. For example, you would record ROA = .1263974 as 12.64% (note that on D2L you will enter 12.64 without the percent sign). For dollar answers, round to the nearest dollar. For example, you would record $12,345.83943 as $12,346 (note that on D2L you will enter 12346 without a comma and without the dollar sign).13. Felton Farm Supplies, Inc. has an ROA (return on assets) of 12 percent, total assets of $1,000,000 and a net profit margin of 4.25 percent. What are Felton Farm Supplies annual sales?14. Krisle and Kringle's debt ratio = 72.0%. What is the company’s debt-to-equity ratio? (Enter answer as a ratio rounded to 2 decimal places – that is, do not convert to a percent; for example, enter 80/35 = 2.2857 as 2.29).15. Philips, Inc has a debt ratio of 42.5% and ROE = 15%. What is Phillips’ ROA? (Enter answer as a percent).16. A firm has an ROA of 16% and a debt/equity ratio of 1.45. The firm's ROE is _________. (Enter answer as a percent).17. Assume that XYZ, Inc. has:Debt ratio = 70% Net profit margin = 15% Return on assets (ROA) = 7.5% Find XYZ’s Total Asset Turnover ratio. (Enter answer as a ratio – that is, do not convert to a percent).

Answer 1

13. Net income = total assets x ROA

= $ 1,000,000 x 12%

= $ 120,000

Net Income for company is $120,000.

Net Profit margin = 4.25%

Total sales = net income / net profit margin

= $ 120,000 / 4.25%

= $ 2,823,529

Total sales for company is $ 2,823,529

14. Debt ratio = 72%

So weight of debt = 72%

Weight of equity = 1 - 72%

= 28%

Debt equity ratio
`$=(72 \%)/(28 \%)$`

= 2.57

Debt equity ratio is 2.57

15. Debt ratio = 42.50%

So, weight of debt = 42.50%

Weight of equity = 1 - 42.50%

= 57.50%

Weight of equity is 57.50%.

Return on equity = 15%.

Return on assets = 57.50% × 15%

= 8.625%

Return on assets is 8.625%.

16.

Debt Equity ratio = 1.45

Weight of debt = 59.18%

Weight of equity = 40.82%

Return on assets = 16%

Return on equity = 16% / 40.82%

= 39.20%

Return on equity is 39.20%.

17.

Total Assets turnover = Sales / Total Assets

= (Net Income / Total Assets) / (Net Income / Sales)

= ROA / Net Profit margin

= 7.50% / 15%

= 0.50

Total Assets turnover is 0.50.