Question Details

A new firm is developing its business plan 



1.	A new firm is developing its business plan.  It will require $615,000 of assets, and it projects $450,000 of sales and $355,000 of operating costs for the first year.  Management is reasonably sure of these numbers because of contracts with its customers and suppliers.  It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt.  What is the maximum debt ratio the firm can use?  (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt ratio.)

a.	41.94%
b.	44.15%
c.	46.47%
d.	48.92%
e.	51.49%
	
2.	Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt).  Its sales for the last year were $595,000, and its net income was $25,000.  Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15.0%.  What profit margin would the firm need in order to achieve the 15% ROE, holding everything else constant?

a.	9.45%
b.	9.93%
c.	10.42%
d.	10.94%
e.	11.49%
	
3.	Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 315,000 shares outstanding, and its debt ratio was 44%.  How much debt was outstanding?

a.	$4,586,179
b.	$4,827,557
c.	$5,081,639
d.	$5,349,094
e.	$5,630,625
	
4.	Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000.  The firm's total-debt-to-total-assets ratio was 45.0%.  Based on the DuPont equation, what was the ROE?

a.	13.82%
b.	14.51%
c.	15.23%
d.	16.00%
e.	16.80%
	5.	Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2.  The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs.  Had it reduced its assets by this amount, and had the debt ratio, sales, and costs remained constant, how much would the ROE have changed?

a.	4.10%
b.	4.56%
c.	5.01%
d.	5.52%
e.	6.07%




Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help