Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Year 1 496 1,3

Question

Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Year 1 496 1,340 6,806 284 1,244 1,500 434 Accounts payable Accounts receivable Accum Cash & equivalent Common stock Cost of goods sold 6,682 178 1,170 n.a n.a n.a n.a 1,076 n.a 786 ulated depreciation Common stock dividends paid 140 1,074 602 872 230 10,260 3,122 3,018 116 Addition to retained earnings Long-term debt 10,000 Retained earnings Sales 2,526 n.a 34% Tax rate Market price per share - year end Number of shares outstanding n.a $ 17.50 S 19.80 500 million million Net profit = 827.64 a. Calculate Windswept Woodworks' return on equity for year 2. (Round your answer to 2 decimal places.) ROE Calculate the following items for Windswept Woodworks for year 2. (Round your answers to 2 decimal places.) c. Tax burden ratio 0.66 d. Interest burden ratio e. Asset turnover ratio f. Leverage ratio

Explanation / Answer

a) Return on Equity = Net income / Shreholder Equity

Total shareholder Equity in year 2 = $19.8*500 million = $9,900 million

RoE = $827.64 / 9900 = 8.36%

b) Profit Margin = Total profit / total sales = 827.64 / 3018 = 27.42%

c) Tax burden ratio = 34% (prevailing tax rate)

d) Interest burden ratio = PBT / EBIT. Now PAT = PBT * (1-tax). So PBT = 827.64 / 66% = 1254

EBIT = PBT + interest expense = 1254 + 140 = 1394

Thus, Interest burden ratio = 1254 / 1394 = 89.95%

e) Asset turnover ratio = sales / average total assets

Average total assets = Market value of long term debt + market value of Equity

= 872+786 / 2 + (19.9+17.5)/2*500 = 829 + 9350 = 10,179

Asset turn over = 3018 / 10179 = 29.64%

f) Leverage ratio = total liabilities / total assets

Total liabilities = 872 and total assets = 10179

Leverage ratio = 872 / 10179 = 8.56%

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.