1. To estimate Whistler Corporation's external financing needs, the chief financial officer needs to figure out how much equity the firm will have at the end of next year. At the end of the most recent fiscal year, Whistler's retained earnings were $135,500. The Controller has estimated that over the next year, gross profits will be $457,700, earnings after tax will total $525,400, and the dividend payout ratio is 30%. What are the estimated retained earnings at the end of next year? (Hint: Dividend Payments = Net Income (i.e., Earnings after taxes x dividend payout ratio.)
a. $660,900
b. $503,280
c. $293,120
d. $455,890
2. Assume Suunto Inc. has no liabilities other than the debt shown below. The tax rate is 35% and all dollars are in millions. What is Sunnto’s ROIC?
Earnings before interest and taxes: $294
Debt (at 10% interest): $840
Equity: $210
a.0.987
b. 2,275
c. 3.214
d. 0.280
e. 0.182
3. Which of the following statement is true?
a. When cash flow from financing activities on a company’s cash flow statement is negative, it means that the company is paying out more money to investors in the form of debt principal repayment, interest payments, dividends and share repurchase.
b. When cash flow from investing activities on a company’s cash flow statement is negative, it means that Company purchased more property, plant, equipment or market securities than it disposed of during the year.
c. ROIC (return on invested capital) reflects the company's fundamental earning power before it is confounded by differences in financing strategy.
d. The most common approach to developing pro forma financial statements is called the percent-of-sales method.
e. All of the above statements are true.