Georgia Electric reported the following income statement and balance sheet for t
ID: 2765505 • Letter: G
Question
Georgia Electric reported the following income statement and balance sheet for the previous year:
$ 100,000
1,000,000
500,000
$1,600,000
$4,000,000
4,400,000
2,000,000
$6,000,000
$6,000,000
$3,000,000
1,600,000
$1,400,000
400,000
$1,000,000
400,000
$ 600,000
The company's interest cost is 10%, so the company's interest expense each year is 10% of its total debt.While the company's financial performance is quite strong, its CFO is always looking for ways to improve. The CFO has noticed that the company's inventory turnover ratio is considerably weaker than the industry average, which is 6.0. As an exercise, the CFO asks what would the company's ROE have been last year if the following had occurred:
Under this scenario, what would have been the company's ROE last year?
27.0%
29.5%
30.3%
31.5%
33.0%
Balance Sheet: Cash$ 100,000
Inventories1,000,000
Accounts receivable500,000
Current assets$1,600,000
Total debt$4,000,000
Net fixed assets4,400,000
Total equity2,000,000
Total assets$6,000,000
Total claims$6,000,000
Income Statement: Sales$3,000,000
Operating costs1,600,000
Operating income (EBIT)$1,400,000
Interest400,000
Taxable income (EBT)$1,000,000
Taxes (40%)400,000
Net income$ 600,000
Explanation / Answer
ROE =Net income /Sharehplders equity
= 600,000 / 2,000,000
= .30 or 30%
correct option is "C" - 30.3% [approx to 30% ]
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.