X Co. has made plans for the next year. It is estimated that the company will...

 

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X Co. has made plans for the next year. It is estimated that the company will employ total assets of RM800,000; 50 percent of the assets being financed by borrowed capital at an interest cost of 8 percent per year. The direct costs for the year are estimated at RM480,000 and all other operating expenses are estimated at RM80,000. The goods will be sold to customers at 150 percent of the direct costs. Tax rate is assumed to be 50 percent. a) You are required to calculate: (i) Net Profit Margin (ii) Return on Assets (iii) Asset Turnover (iv) Return on Owners' Equity b) What are the factors do you think will affect Net Profit Margin? c) As an investor, will you invest in X Co. if you could earn an annual return of 14% by purchasing a government security? Why? X Co. has made plans for the next year. It is estimated that the company will employ total assets of RM800,000; 50 percent of the assets being financed by borrowed capital at an interest cost of 8 percent per year. The direct costs for the year are estimated at RM480,000 and all other operating expenses are estimated at RM80,000. The goods will be sold to customers at 150 percent of the direct costs. Tax rate is assumed to be 50 percent. a) You are required to calculate: (i) Net Profit Margin (ii) Return on Assets (iii) Asset Turnover (iv) Return on Owners' Equity b) What are the factors do you think will affect Net Profit Margin? c) As an investor, will you invest in X Co. if you could earn an annual return of 14% by purchasing a government security? Why?

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