Answer:
A. Without Bond Issue:
1.Return on Assets 15.79%
2. Return on Equity 23.08%
3. Debt Ratio 0.3
4. Debt Equity Ratio 0.43
B. If Bonds are issued:
1. Return on Assets 13.21%
2. Return on Equity 23.08%
3. Debt Ratio 0.49
4. Debt Equity Ratio 0.96
C. Dividend $5,000
Explanation:
A. Calculation for without the bond issue
WITHOUT BOND ISSUE:
1. Calculation for Return on Assets using this formula
Return on Assets=Net Income/Average total assets
Let plug in the formula
A Net Income $15,000
B Assets at the beginning of the year $90,000
C Assets at the end of the year $100,000
D=(B+C)/2 Average asset $95,000
E=A/D Return on Assets =$15,000/$95,000
Return on Assets =0.157894737*100
Return on Assets= 15.79%
2. Calculation for Return on Equity using this formula
Return on Equity =Net Income /Average Shareholders Equity
Let plug in the formula
F Shareholders Equity at the Beginning of the year $60,000
G Shareholders Equity at the End of the year $70,000
H=(F+G)/2 Average Shareholders Equity $65,000
I=A/H Return on Equity=$15,000/$65,000
Return on Equity= 0.230769231*100
Return on Equity = 23.08%
3. Calculation for Debt Ratio using this formula
Debt Ratio=Total Liabilities/Total Assets
Let plug in the formula
J Total Liabilities $30,000
K Total assets $100,000
L=J/K Debt Ratio=$30,000/$100,000
Debt Ratio= 0.3
4. Calculation for Debt Equity Ratio using this formula
Debt Equity Ratio =Total Liabilities/Shareholders Equity
Let plug in the formula
M Shareholders Equity $70,000
N=J/M Debt Equity Ratio=$30,000/$70,000
Debt Equity Ratio=0.428571429*100
Debt Equity Ratio=0.43 Approximately
B. Calculation for if bonds are issue
IF BONDS ARE ISSUE
Amount Received from Bond Issue $37,015.12
End of Year Assets =100,000+37015.12
End of Year Assets =$137,015.12
End of Year Liabilities=30000+37015.12 End of Year Liabilities=$67,015.12
End of year Equity=$137,015.12-$67,015.12
End of year Equity $70,000
1. Calculation for Return on Assets using this formula
Return on Assets=Net Income/Average total assets
Let plug in the formula
A Net Income $15,000
B Assets at the beginning of the year $90,000
C Assets at the end of the year $137,015.12
D=(B+C)/2 Average asset $113,507.56
E=A/D Return on Assets=$15,000/$113,507.56
Return on Assets=0.132149788*100
Return on Assets=13.21%
2. Calculation for Return on Equity using this formula
Return on Equity=Net Income /Average Shareholders Equity
Let plug in the formula
F Shareholders Equity at the Beginning of the year $60,000
G Shareholders Equity at the End of the year $70,000
H=(F+G)/2 Average Shareholders Equity $65,000
I=A/H Return on Equity =$15,000/$65,000
Return on Equity= 0.230769231 *100
Return on Equity=23.08%
3. Calculation for Debt Ratio using this formula
Debt Ratio=Total Liabilities/Total Assets
Let plug in the formula
J Total Liabilities $67,015
K Total assets $137,015
L=J/K Debt Ratio=$67,015/$137,015
Debt Ratio=0.48910748
Debt Ratio=0.49 Approximately
4. Calculation for Debt Equity Ratio using this formula
Debt Equity Ratio =Total Liabilities/Shareholders Equity
Let plug in the formula
M Shareholders Equity $70,000
N=J/M Debt Equity Ratio=$67,015/$70,000
Debt Equity Ratio= 0.957358857
Debt Equity Ratio=0.96 Approximately
C. Calculation for how much did the company pay in dividends this year (if any)
First step is to calculate the Increase in Equity
Increase in Equity=70,000-60,000
Increase in Equity= $10,000
Now let calculate the Dividend using this formula
Dividend=Net Income- Increase in Equity
Let plug in the formula
Dividend =$15,000-$10,000
Dividend=$5,000
Therefore the amount that did the company pay in dividends this year is $5,000
