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kondor19780726 [428]
3 years ago
15

Last year Ann Arbor Corp had $195,000 of assets (which equals total invested capital), $305,000 of sales, $20,000 of net income,

and a debt-to-total-capital ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not round your intermediate calculations. Question 16 options: 8.85% 10.88% 10.45% 12.37% 10.67%
Business
1 answer:
telo118 [61]3 years ago
4 0

Answer:

10.67%

Explanation:

For computing the change in ROE first we have to find out the debt and equity values which are shown below:

The debt value = Total invested capital × debt rate

                         = $195,000 × 37.5%

                         = $73,125

And, the equity value = Total assets - debt value

                                   = $195,000 - $73,125

                                   = $121,875

Now we apply the Return on Equity formula which is presented below:

= (Net income ÷ Total equity) × 100

The net income is $20,000 and the equity value would remain the same

So, the ratio would be = ($20,000 ÷ $121,875) × 100 = 16.41%

And if the net income raise to $33,000

Then the new ROE would be = ($33,000 ÷  $121,875)  × 100 = 27.07%

So, the change in ROE

= New ROE - Old ROE

= 27.07% - $16.41%

= 10.67%

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The bad debts expense for 2015 would be $ 28,000

Explanation:

The balance of the allowance for doubtful account should be equal to the amount estimated to be uncollectible based on the ageing analysis

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Allowance for doubtful accounts prior to adjustment               <u>$   3,000</u>

Bad debts expense for the year to be recorded                    <u> $ 28,000</u>

The accounting entry to record this is as follows:

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3 years ago
Giải hộ em câu THUẾ này nói về đúng hay sai và giải thích , đưa ra lời giải giúp em ạ , em cám ơn mọi người ạ
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Explanation:

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8 0
3 years ago
Southern Markets has sales of $78,400, net income of $2,400, costs of goods sold of $43,100, and depreciation of $6,800. What is
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Answer:

36.35%

Explanation:

According to the scenario, computation of the given data are as follows,

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Net income = $2,400

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So, we can calculate the EBIT value by using following formula:

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= $28,500 ÷ $78,400

= 36.35%

Hence, the common-size statement value of EBIT is 36.35%

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