BUSN 405-Corporate Financial Analysis Review Quiz-9/11/18 Brown Office Supplies

Question

BUSN 405-Corporate Financial Analysis Review Quiz-9/11/18 Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)2 a. $4,627 b. $4,870 c. $5,114 d. $5,369 2 Your sister is thinking about starting a new business. The company would require $375,000 of assets, and it would be financed entirely with common stock. She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $41,234 b. $43,405 c. $45,689 d. $50,625 3 Helmuth Inc's latest net income was $1,250,000, and it had 225,000 shares outstanding The company wants to pay out 45% of its income. What dividend per share should it declare? a. $2.14 b. $2.26 c. $2.38 d. $2.50

Explanation / Answer

1. EBT = (Sales - Costs - Depreciation - Interest) = (15500 - 8250 --1750 - 9000 * 7% ) = 4870
Option b is correct.

2. ROE = 13.5%, Assets = 375,000, Here Equity = Assets
ROE = Net income /Equity
13.5% = Net income/375000
Net income = 375,000 *13.5% = 50625
Option d is correct

3. Net income =1,250,000
Dividend Payout = 45% *1,250,000 = 562,500
Dividend Per share = Dividend Payout /No of Shares = 562,500/225000 = 2.5
Option d.

4. Total Assets = 625,000
Debt/Total Assets = 55%
Debt = 55%*625000 = 343750

Debt to be added = 343750 - 185000 = 158,750(Option a)

As per Chegg policy maximum 4 subparts can be solve. Please place the remaining questions in CHEGG to get the answer.

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