Accounting Help

10-09-16 cheapnisha 0 comment

Accounting Help

SECTION 1: SHORT ANSWER PROBLEMS

  1. Vindaloo Corporation reported retained earnings of $400 on its year-end 2002 balance sheet. During 2003, the company reported a loss of $40 in net income, and it paid out a dividend of $60. We will calculate retained earnings for Vindaloo’s 2003 year-end balance sheet.

Retained earnings for Vindaloo’s 2003.

Particulars Amount
Retained Earning 2002 400
Less : Loss during The year 40
Less : Divided pay out 60
Retained Earning 2003 300
  1. A firm has an ROA of 8%, sales of $100, and total assets of $75. Lets calculate its profit margin.
Total Assets  $    75.00
 8% ROA  $       6.00
 (Total Assets * ROA = 75*(8/100) = 6)
 Total Sales  $  100.00
 Profit Margin  $       6.00
 (Profit / Total Sales = )
  1. Given the following information: profit margin = 10%; sales = $100; retention ratio = 40%; assets = $200; equity multiplier = 2.0. If the firm maintains a constant debt-equity ratio and no new equity is used, what is the maximum sustainable growth rate (SGR)?  (Assume a constant profit margin.)
Particulars Details
profit margin 10%
Sales 100
Total Profit 10
Retention 4
Total Assets 200
Equity Multiplier 2
Total equity 100
(Total Assets/ equity multiplier)
Total debt 100
Debt Equity ration constant
ROE 0.1
Retention Ratio 40%
ROE* Retention Retio 0.04
1-ROE* Retention Retio 0.96
SGR=ROE*R.R/1-ROE*R.R 4.17%
  1. Your brother-in-law invests in the stock market and doubles his money in a single year while the market, on average, earned a return of only about 15%, here a discussion is done whether  your brother-in-law’s performance a violation of market efficiency or not.

No, brother in law performance is not violation of market efficiency; this indicates that Brother in law has taken much higher risk than the average market. If it suits him so be it (Preda, 2009).
This could also indicate that the Brother in law had some good market tips and exited at most opportune time without hanging around with the stocks.

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