1. Baker Industries’ net income is $21,000, its interest expense is $4,000, and its tax rate is 25%. Its notes payable equals $27,000, long-term debt equals $80,000, and common equity equals $240,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.

ROE: .........%

ROIC: ......... %

2. Broward Manufacturing recently reported the following information:

Net income	$534,000
ROA	8%
Interest expense	$176,220
Accounts payable and accruals	$1,050,000

Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

BEP: %

ROE: %

ROIC: %

3.

Pacific Packaging's ROE last year was only 2%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $350,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $720,000 on sales of $10,000,000, and it expects to have a total assets turnover ratio of 3.5. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

........ %

Answer rating: 100% (QA)

QUESTION 1 ANSWER ROE Net Income Shareholders Equity ROE 21000 240000 ROE 875 ROIC Net Income Intere... View the full answer