What are the steps to solving the following problem? At year-end 2525 the compan
ID: 2682294 • Letter: W
Question
What are the steps to solving the following problem?At year-end 2525 the company has Total assets of $6,200 financed by Debt of $3,300 and Stockholders' equity of $2,900 . For 230 common shares outstanding, the equity price-to-book ratio at year-end 2525 is 1.23. During 2526, the company expects an asset turnover ratio (= Salest / Total assetst-1 ) of 4.0 and an operating margin (= (Sales - operating expenses) / Sales ) of 5.8%. Interest charges will equal 6% of Debt. Corporate taxes equal 30% of taxable income and the payout ratio always is 35%. Your analyst tells you that at year-end 2526 the company price-to-earnings ratio will equal 4.5. What is the shareholders' rate of return for year 2526?
Explanation / Answer
What are the steps to solving the following problem?
At year-end 2525 the company has Total assets of $6,200 financed by Debt of $3,300 and Stockholders' equity of $2,900 . For 230 common shares outstanding, the equity price-to-book ratio at year-end 2525 is 1.23. During 2526, the company expects an asset turnover ratio (= Salest / Total assetst-1 ) of 4.0 and an operating margin (= (Sales - operating expenses) / Sales ) of 5.8%. Interest charges will equal 6% of Debt. Corporate taxes equal 30% of taxable income and the payout ratio always is 35%. Your analyst tells you that at year-end 2526 the company price-to-earnings ratio will equal 4.5.
Rare of return = price +dividends- pricet-1 / pricet-1
Net income 2526 =(sales- operating expenses-interest)(1- tax rate)=
Net income 2526 =(sales /assets (assets)(operating margin)-interest) ( 1- tax rate)=
What is the shareholders' rate of return for year 2526?
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