2011 2010 $475,000 $510,625 $308,750 $331,906 $166,250 $178,719 Revenue Cost of

Question

2011 2010 $475,000 $510,625 $308,750 $331,906 $166,250 $178,719 Revenue Cost of goods sold Gross profit General sales and administrative $95,000 $102,125 EBIT Interest Taxes Net profit $71,250$76,594 $21,375$22,978 $49,875 $53,616 Table 10.4 Abbreviated Balance Sheet 2010 2011 Total assets Long-term debt Owners' equity Total debt and equity $750,000 $765,000 $750,000 $765,000 $750,000 $765,000 Table 10.5 ROA and ROE Values for 2010 and Projections for 2011 2010 (%) | 2011 (%) Return on assets 6.65 7.01 Return on equity 6.65 7.01

Explanation / Answer

Solution.

We take 50,000 debt and 5,000 interest at the rate of 10%.

Particular 2010 2011 Revenue     475,000.00     510,625.00 COGS (308,750.00) (331,906.00) Gross profit     166,250.00     178,719.00 Sales & Admin     (95,000.00) (102,125.00) EBIT        71,250.00        76,594.00 Interest          5,000.00          5,000.00 EBT        66,250.00        71,594.00 Taxes     (21,375.00)     (22,978.00) Net Profit        44,875.00        48,616.00 Balance Sheet 2010 2011 Total Asset     800,000.00     815,000.00 Longterm debt        50,000.00        50,000.00 Owner Equity     750,000.00     765,000.00 Total Debt & Equity     800,000.00     815,000.00 ROA and ROE value for 2010 and 2011 2010 ( %) 2011 ( %) Return on asset                  5.61                  5.97 Return on Equity                  5.98                  6.36

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