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Homework Assignment-Week 1

By Arwa Kheriwala
Problems: 3-19, 4-12, and 4-23

TIE RATIO The H.R. Pickett Corp. has $500,000 of debt outstanding, and it pays an
annual interest rate of 10%. Its annual sales are $2 million, its average tax rate is 30%,
and its net profit margin is 5%. What is its TIE ratio?

TIE Ratio: (Earnings before interest and taxes (EBIT)/Interest charges
Interest-10% $ 50,000
Debt $ 500,000

Sales $ 2,000,000
Tax Rate -30% $ 600,000
Net Profit Margin-5% $ 100,000

EBIT (Net Income+Int+Tax) $ 750,000

TIE Ratio 15x

4-23 DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. a. b. Perform an analysis of the firm’s financial position using the DuPont equation. how might that affect the validity of your ratio analysis? How might you correct for such potential problems? . If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year. Construct a DuPont equation and compare the company’s ratios to the industry average ratios. c. The most recent industry average ratios and the firm’s financial statements are as follows: Statements as per text-book. Which specific accounts seem to be most out of line relative to other firms in the industry? e. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits? d. Calculate those ratios that you think would be useful in this analysis. The firm has no lease payments but has a $2 million sinking fund payment on its debt.


Q3-19 .

I could not work out C D E F part of the question since my A and B part were not coming accurate. Can you please share the solution for the same. .