Problem 1
The King Card Company has a return-on-assets (investment) ratio of 19 percent.
(a) If the debt-to-total-assets ratio is 60 percent, what is the return on equity?
Return on equity
(b) If the firm had no debt, what would the return-on-equity ratio be?
Return on equity
Problem 2
Using the Du Pont method, evaluate the effects of the following relationships for the Lollar Corporation.
(a) Lollar Corporation has a profit margin of 5.5 percent and its return on assets (investment) is 8.75 percent. What is its assets turnover ratio?
Assets turnover ratio
(b) If the Lollar Corporation has a debt-to-total-assets ratio of 65 percent, what would the firm's return on equity be?
Return on equity
(c) What would happen to return on equity if the debt-to-total-assets ratio decreased to 60 percent?
Return on equity
Problem 3
Jerry Rice and Grain Stores has $4,670,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 3.5 times per year. It has $193,000 in current liabilities and $374,000 in long-term liabilities.
(a) What is its return on stockholders' equity?
Return on stockholders' equity
(b) If the asset base remains the same as computed in part a, but total asset turnover goes up to 4.00, what will be the new return on stockholders' equity? Assume that the profit margin stays the same as do current and long-term liabilities.