BE7b

The most recent annual report lists company Sales revenue at $73,775 . Cost analysis suggests that annual Total fixed costs equal $21,375 and Total variable costs equal $35,525 . The annual Interest expense is $2,550 and there is no preferred stock. The company pays 35% of taxable income as taxes. The annual report also shows ROE, that is return on equity (=Net incomet / Stockholders' equityt), equals 12.3%. The company wants to increase its ROE to a target of 18.0%. They plan to hold constant Stockholders' equity, Total assets, Total fixed costs, Interest, and the ratio of Sales revenue to Total variable costs. Find the target Sales revenue and net profit margin (=Net income / Sales revenue) that provides the target ROE.

a. Target Sales revenue equals $99,566 and the net profit margin is 13.7% b. Target Sales revenue equals $86,579 and the net profit margin is 13.7% c. Target Sales revenue equals $114,501 and the net profit margin is 15.7% d. Target Sales revenue equals $99,566 and the net profit margin is 15.7% e. Target Sales revenue equals $86,579 and the net profit margin is 15.7% Hint: 1. Find Net Income for NOW from the Given Information 2. Find Shareholders Equity from

3. Then use the formula

BA9C The Company balance sheet for year-end 2525 shows that Total assets of $6,300 include Plant, property, & equipment (PP&E) of $3,200 .The assets are financed by Debt of $700 and Stockholders equity of $5,600 (there are 500 shares outstanding). For year 2526 the company forecasts sales of $13,230 , a net profit margin (= net income sales) of 7.5%, a dividend payout ratio (=dividends net income) of 50%, and depreciation that is 21% of beginning-of-year PP&E. Throughout year 2526 Debt remains unchanged. The company expects to make capital expenditures such that for the year-end 2526 balance sheet PP&E is $300 larger than it is on the 2525 balance sheet above. Suppose the Capital expenditure is financed exclusively by issuing new equity at the stock price of year-end 2525. Also, suppose the equity price-to-book ratio is constant at 2.1. Find the stockholders annual rate of return for year 2526.

Hint:

So our goal is to solve for:

First we can find the price in 2525 using the equity price-to-book ratio is 2.1

Since Capital Exp. is financed solely by issuing new equity at P2525, first figure out how much Capital Exp. are then use this to determine the number of new shares issued:

You should find Capex = $972

Now determine the Net Income in 2526 and use thisinformation to solve for dividends per share in 2526: Finally, we want to solve for P2526. Again, we use the P/B ratio but first weneed to solve for SE2526 (use that Cap. Ex. =Net Equity Issues): FINAL ANSWER 20.5%