1) Compute the debt/equity ratio and debt ratio for the firm with overall debt of $700,000 and equity of $300,000?
2) Firm with sales of $500,000 has average inventory of $200,000. Industry average for inventory turnover is four times a year. Find out the reduction in inventory if this firm small to attain turnover comparable to industry average?
3) Two firms have sales of $1 million each. Other financial information is given:
Firm A Firm B
EBT $150,000 $150,000
Interest Expense 20,000 75,000
Income Tax 50,000 30,000
Equity 300,000 100,000
Determine the operating profit margin and net profit margins for these two firms? Compute their return on equity? Describe why they are different? If total assets are similar for each firm, what can you conclude about their particular uses of debt financing?