Question

Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

Answer 1

Answer:

(a) 4.2% (b) 0.52

Explanation:

Solution

The sale of total assets = 1.4

Return on assets and PAT/assets= 6%

ROE PAT/Equity =9%

(a)Profit margin/PAT/Sales is defined as follows:

profit margin = ROA/(Sales/Total assets)= 6%/1.4 = 0.42 = 4.2%

(b) ROE=profit margin X*Sales/Assets X (Assets/Equity)

= Assets/Equity=9%/ =(4.2%*1.4)

9% (0.058)

= 0.005292 = 0.52

Equity/assets 0.52

Debt assets=1- equity/assets    

0.52