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10) For the year just ended, a firm with $1 million in assets had a total...

10) For the year just ended, a firm with $1 million in assets had a total asset turnover ratio of 4.4, EBIT of $380,000, a 30% tax rate, and $300,000 in debt. The interest rate on the debt is 8% per year. Calculate the firm’s profit margin and its ROE.

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Firms profit margin is = Net Income/Sales)*100 Net Income EBIT Interest Taxes Interest is-300000*8%-$ 24,000/. EBT is EBIT - Interest- (380000-24000) EBT is EBIT-Interest = 356000/. Tax is (356000130%)-S 106,800/. Net Income (380000-24000-106800) Net Income = $ 249,200/. Using asset turnover, Sales is computed as below Asset Turnover- (Sales/Assets) 4.40-Sales/1000000 Sales is4.40 1000000 Sales is-$ 4,400,000/ Profit margin (249200/4400000) 100 Profit margin = 5.66% Approx. ROE = (Net Income/Shareholders Equity)*100 Shareholders Equity- Total Assets - Total Debt) Shareholders Equity = (1000000-300000) Shareholders Equity S 700,000/. ROE (249200/700000) 100 ROE-35.60%

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