SECTION 1: SHORT ANSWER PROBLEMS
- 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.
|Retained Earning 2002||400|
|Less : Loss during The year||40|
|Less : Divided pay out||60|
|Retained Earning 2003||300|
- 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 = )|
- 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.)
|(Total Assets/ equity multiplier)|
|Debt Equity ration constant|
|ROE* Retention Retio||0.04|
|1-ROE* Retention Retio||0.96|
- 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.