Reference no: EM133380690
Introduction to Finance
Question 1. A software company is contemplating launching a new product. However, the assets needed to support this launch are estimated to be $1,500,000. Based on the prediction of financial managers, the company can generate $3,200,000 in annual sales, with an estimated 15 percent net profit margin. What would the return on the new assets be for the year?
Note: Please express the result as percentage and keep two digits after the decimal point (e.g. 12.34% or 1.23%). (add the percentage sign)
Question 2. A local appliances company generated a sales revenue of $15,000,000 and net income of $800,000 in the past fiscal year. Its total assets are $10,500,000, and stockholders' equity is $3,500,000.
a) What is the net profit margin?
b) What is the return on assets (ROA)?
c) What is the return on equity (ROE)?
d) The total debt ratio is currently 66.67%. If the net income and total assets stay the same, but new shares are issued to pay off the debt, and the total debt ratio decreases to 50%, what would the return on equity be now?
Note: Please express all the ratios as percentages and keep two digits after the decimal point (e.g. 12.34% or 1.23%).
Question 3. On the attached spreadsheet we have financial statements for a particular company for 2022 and 2021. You are to undertake a financial analysis of this company.
a) Calculate the key financial ratios for 2021 and 2022 that are listed in the excel file(an excel template is provided on canvas)
b) Assess the company's asset management position, and determine how it compares with the industry and how its asset management efficiency has changed over time.
c) What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.
Question 4. (Note, for this question, you may find information from the live sessionin Module 3useful.) Illinois Renewable Energy Company's current income statement is shown below. The company has forecasted a sales growth rate of 15% for next year (Fiscal Year 2023). Please use the percentage-of-sales approach to construct the firm's pro-forma income statement for next year (an excel template is provided on canvas)
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Income Statement
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Fiscal Year 2022
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Sales revenue
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$ 400,000.00
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Costs except depreciation
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$ 300,000.00
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EBITDA
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$ 100,000.00
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Depreciation and amortization
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$ 20,000.00
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Earnings Before Income and Taxes (EBIT)
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$ 80,000.00
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Interest expense
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$ 5,000.00
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Earnings before taxes (EBT)
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$ 75,000.00
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Taxes (20%)
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$ 15,000.00
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Net Income
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$ 60,000.00
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Common stock dividends
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$ 42,000.00
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Increase in retained earnings
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$ 18,000.00
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Attachment:- Module template.rar