Question

Assume the following data for Cable Corporation and Multi-Media Inc. Cable Corporation Multi-Media Inc. Net income $ 30,700 $ 115,000 Sales 336,000 2,370,000 Total assets 485,000 919,000 Total debt 229,000 465,000 Stockholders' equity 256,000 454,000 a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.) a-2. Which firm has the higher return? Cable Corporation Multi-Media Inc. b. Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.) Next Visit question mapQuestion 8 of 9 Total8 of 9 Prev

Answer 1

Cable Corporation Multi-Media Inc.

Net income $30,700 $115,000

Sales $336,000 $2,370,000

Total assets $485,000 $919,000

Total debt $229,000 $465,000

Stockholders' equity $256,000 $454,000

a-1. Compute return on stockholders’ equity for both firms.

ROE = net income / shareholders' equity

• Cable Corporation ROE = $30,700 / $256,000 = 11.99%
• Multi-Media Inc. ROE = $115,000 / $454,000 = 25.33%

a-2. Which firm has the higher return?

• Multi-Media Inc.

b. Compute the following additional ratios for both firms.

Input your Net income/Sales

• Cable Corporation = $30,700 / $336,000 = 9.14%
• Multi-Media Inc. = $115,000 / $2,370,000 = 4.85%

Net income/Total assets

• Cable Corporation = $30,700 / $485,000 = 6.33%
• Multi-Media Inc. = $115,000 / $919,000 = 12.51%

Debt/Total asset

• Cable Corporation = $229,000 / $485,000 = 47.22%
• Multi-Media Inc. = $465,000 / $919,000 = 50.60%

Sales/Total assets

• Cable Corporation = $336,000 / $485,000 = 0.69
• Multi-Media Inc. = $2,370,000 / $919,000 = 2.58