Chapter 2: Q5BP (page 78)
Elizabeth Tailors Inc. has assets of $8,940,000 and turns over its assets 1.9 times per year. Return on assets is 13.5 percent. What is the firm’s profit margin (returns on sales)?
The profit margin of the company is 7.11%.
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Billy’s Crystal Stores Inc. has assets of $5,960,000 and turns over its assets 1.9 times per year. Return on assets is 8 percent. What is the firm’s profit margin (return on sales)?
Network Communications has total assets of \(1,500,000 and current assets of \)612,000. It turns over its fixed assets three times a year. It has $319,000 of debt. Its return on sales is 8 percent. What is its return on stockholders’ equity?
Amigo Software Inc. has total assets of \(889,000, current liabilities of\)192,000, and long-term liabilities of \(154,000. There is \)87,000 in preferredstock outstanding. Thirty thousand shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $56,300 in earnings available to common stockholders and the
firm’s stock has a P/E of 23 times earnings per share, what is the currentprice of the stock?
c. What is the ratio of market value per share to book value per share? (Round
to two places to the right of the decimal point.)
Assume the following data for Cable Corporation and Multi-Media Inc.
Capable corporation | Muli-media inc | |
Net income | \(31,200 | \)140,000 |
Sales | 317,000 | 2,700,000 |
Total assets | 402,000 | 965,000 |
Total debts | 163,000 | 542,000 |
Stockholder’s equity | 239,000 | 423,000 |
b. Compute the following additional ratios for both firms:
Net income/Sales
Net income/Total assets
Sales/Total assets
Debt/Total assets
Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows
| Sales | \( 2790000 |
| Cost of goods sold | 1790000 |
| Gross profits | \) 1000000 |
| Selling and administrative expenses | 302000 |
| Operating profits | \( 698000 |
| Interest Expense | 54800 |
| Income before tax | \) 643200 |
| Taxes 30% | 192960 |
| Income after tax | $ 450240 |
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
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