Question 1

Calculate retention ratio given the following information: EBIT $150,000; interest expense $16,000; tax rate 30%; dividends paid $40,000.

Accepted Answer

The retention ratio is calculated as the portion of net income that is retained in the business rather than paid out as dividends. First, calculate the net income: EBIT - Interest = Earnings Before Taxes (EBT); EBT - Taxes = Net Income. So, $150,000 - $16,000 = $134,000 (EBT); $134,000 * (1 - 0.30) = $93,800 (Net Income). Retention ratio = (Net Income - Dividends) / Net Income = ($93,800 - $40,000) / $93,800 = $53,800 / $93,800 = 57.36%.

Question 2

A firm wants to maintain a growth rate of 5% without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of.4, a total asset turnover ratio of 1.15, and a profit margin of 7 percent. What must the retention ratio be?

Accepted Answer

The answer of A firm wants to maintain a growth...

Question 3

Ernie's Electrical has a capital intensity ratio of 1.20 at full capacity. Currently, total assets are $2,880 and current sales are $2,300. At what level of capacity is the firm currently operating?

Accepted Answer

The capital intensity ratio is calculated as total assets divided by sales. At full capacity, this ratio is 1.20 for Ernie's Electrical. To find the current level of capacity, divide the current sales ($2,300) by the total assets ($2,880) and then divide by the full capacity capital intensity ratio (1.20). This gives ($2,300 / $2,880) / 1.20 = 0.6667 / 1.20 = 0.96 or 96%, indicating the firm is currently operating at 96% capacity.

Question 4

Rondolo, Inc. maintains a constant dividend payout ratio. What is the retention ratio?

Accepted Answer

The answer of   Rondolo, Inc. maintains a constant...

Question 5

Calculate payout ratio given the following information: cash dividends paid = $35,525; sales = $900,000; cost of goods sold = $625,000; selling and administrative expenses = $100,000; interest expense = $30,000; tax rate= 30%.

Accepted Answer

Payout ratio = Cash dividends paid / Net incomeNet income = Sales - Cost of goods sold - Selling and administrative expenses - Interest expense - TaxesNet income = $900,000 - $625,000 - $100,000 - $30,000 - ($900,000 - $625,000 - $100,000) * 0.3Net income = $900,000 - $625,000 - $100,000 - $30,000 - $54,000Net income = $93,000Payout ratio = $35,525 / $93,000Payout ratio = 38.2%

Question 6

Assets, accounts payable and costs are proportional to sales. Debt and equity are not.
What is the internal rate of growth for Douglass Enterprises?

Accepted Answer

The answer of   Assets, accounts payable and costs...

Question 7

Calculate retention ratio given the following information: net income = $90,000; cash dividends paid = $76,500.

Accepted Answer

The retention ratio is calculated as (Net Income - Dividends) / Net Income. Here, it is ($90,000 - $76,500) / $90,000 = $13,500 / $90,000 = 0.15 or 15%.

Question 8

Calculate retention ratio given the following information: cash dividends paid = $35,525; sales = $900,000; cost of goods sold = $625,000; selling and administrative expenses = $100,000; interest expense = $30,000; tax rate= 30%.

Accepted Answer

To calculate the retention ratio, first find the net income: Sales - Cost of Goods Sold - Selling and Administrative Expenses - Interest Expense = $900,000 - $625,000 - $100,000 - $30,000 = $145,000. Then, calculate taxes: $145,000 * 30% = $43,500. Net income after tax = $145,000 - $43,500 = $101,500. Retention ratio = (Net Income - Dividends) / Net Income = ($101,500 - $35,525) / $101,500 = 65%.

Question 9

Percy's has a plowback ratio of 75% and a sustainable growth rate of 6 percent. The capital intensity ratio is 1.4 and the debt-equity ratio is.6. What is the profit margin?

Accepted Answer

The answer of Percy's has a plowback ratio of 75%...

Question 10

Calculate retention ratio given the following information: cash dividends paid = $6,000; sales = $100,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; interest expense = $6,000; tax rate = 30%.

Accepted Answer

The retention ratio is calculated as the portion of net income that is retained in the company rather than distributed to shareholders as dividends. First, calculate the net income: Sales ($100,000) - Cost of Goods Sold ($45,000) - Selling and Administrative Expenses ($25,000) - Interest Expense ($6,000) = Operating Income ($24,000). Tax is 30%, so Tax Expense = $24,000 * 30% = $7,200. Net Income = Operating Income - Tax Expense = $24,000 - $7,200 = $16,800. Cash Dividends Paid = $6,000. Retained Earnings = Net Income - Dividends = $16,800 - $6,000 = $10,800. Retention Ratio = Retained Earnings / Net Income = $10,800 / $16,800 = 64.29%.

Question 11

Delta Fasteners has a 12% return on assets and a 45% dividend payout ratio. What is the internal growth rate?

Accepted Answer

The answer of Delta Fasteners has a 12% return on...

Question 12

Calculate payout ratio given the following information: cash dividends paid = $6,000; sales = $100,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; interest expense = $6,000; tax rate = 30%.

Accepted Answer

Payout ratio = (Cash Dividends Paid / Net Income). First, calculate Net Income: Sales - Cost of Goods Sold - Selling and Administrative Expenses - Interest Expense = Earnings Before Tax. Earnings Before Tax - Tax = Net Income. So, $100,000 - $45,000 - $25,000 - $6,000 = $24,000 before tax. Tax = 30% of $24,000 = $7,200. Net Income = $24,000 - $7,200 = $16,800. Payout Ratio = $6,000 / $16,800 = 35.71%.

Question 13

Creative Analysis, Inc. maintains a constant dividend payout ratio. What is their retention ratio?

Accepted Answer

The answer of    Creative Analysis, Inc. maintains...

Question 14

Aisle's Markets has a 7% profit margin and a 60 percent dividend payout ratio. The total asset turnover is 1.35 and the debt-equity ratio is.60. What is the sustainable rate of growth?

Accepted Answer

The sustainable growth rate (SGR) can be calculated using the formula: SGR = ROE * (1 - dividend payout ratio). First, calculate the Return on Equity (ROE) using the formula: ROE = Profit Margin * Total Asset Turnover * Equity Multiplier. The Equity Multiplier is 1 + Debt-Equity Ratio. So, ROE = 0.07 * 1.35 * (1 + 0.60) = 0.1512 or 15.12%. Then, SGR = 0.1512 * (1 - 0.60) = 0.06048 or 6.44%.

Question 15

Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. The desired total debt ratio is 75%. What is the firm's sustainable growth rate?

Accepted Answer

The answer of Moore Money Inc. has a profit margin...

Question 16

Calculate retention ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate= 30%.

Accepted Answer

The retention ratio is calculated as the portion of net income retained in the company rather than paid out as dividends. First, calculate net income: Sales ($250,000) - Cost of Goods Sold ($100,000) - Selling and Administrative Expenses ($50,000) - Interest Expense ($5,000) = Earnings Before Tax ($95,000). Tax is 30% of EBT, so Tax = $95,000 * 30% = $28,500. Net Income = EBT - Tax = $95,000 - $28,500 = $66,500. Cash Dividends Paid = $19,950. Retained Earnings = Net Income - Dividends = $66,500 - $19,950 = $46,550. Retention Ratio = Retained Earnings / Net Income = $46,550 / $66,500 = 0.7 or 70%.

Question 17

Calculate payout ratio given the following information: EBIT $150,000; interest expense $16,000; tax rate 30%; dividends paid $40,000.

Accepted Answer

The payout ratio is calculated as Dividends Paid / Net Income. First, calculate Net Income: EBIT - Interest = Earnings Before Taxes (EBT); EBT - Taxes = Net Income. So, $150,000 - $16,000 = $134,000 (EBT); $134,000 * (1 - 0.30) = $93,800 (Net Income). Then, $40,000 / $93,800 = 0.4264 or 42.64%.

Question 18

An Ottawa firm earns net income of $25,000 in a given year and the firm's retained earnings increase $15,000 for that same year. The retention ratio is:

Accepted Answer

The retention ratio is calculated by dividing the increase in retained earnings by the net income. Here, it's $15,000 / $25,000 = 0.6 or 60%.

Question 19

Calculate payout ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate = 30%.

Accepted Answer

The answer of Calculate payout ratio given the following information:...

Question 20

The following balance sheet and income statement should be used:   What is the internal growth rate of Taylor, Inc. if the dividend payout ratio remains constant?

Accepted Answer

The answer of The following balance sheet and income statement...

Quiz 4: Long-Term Financial Planning and Corporate Growth