Question

B&B Pharmaceutical had net income of $210 million and sales totaling $44,600 million. Its assets at...

B&B Pharmaceutical had net income of $210 million and sales totaling $44,600 million. Its assets at the end of the year totaled $2,000 million. Interest expense was $120 million and the income tax rate was 30 percent. What is B&Bs return on assets?

A.   14.70%

B.   16.20%

C.   18.71%

D.   12.06%

B&B reported total assets at December 31 totaling $300,000. The following selected amounts were taken from its financial statements for its year ending December 31:

Retained earnings (Fund Balance)

$50,000

Sales

$340,000

Accounts receivable

7,000

Common stock

150,000

Inventory

21,000

Net income

115,000

Notes payable

16,000

Dividends paid

12,000

How much is the company’s return on equity as of December 31?

A.   10.35%

B.   67.99%

C.   57.50%

D.   60.25%

B&B financial results are presented below for all Divisions:

           

Operating profit

$435,000

Cash flow from:

Operations

285,000

Investing

   (125,600)

Financing

    (54,000)

What cash management actions most likely occurred during the year?

  1. B&B used cash from operations and from selling long-term assets to pay dividends.
  2. B&B used cash from bank loans or from selling stock and from operations to buy long-term assets.
  3. B&B used cash from bank loans or from selling stock to fund operations and to buy long-term assets.
  4. B&B used cash from operations to buy long-term assets and to repay debt.
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Homework Answers

Answer #1

1) Return On Assets = Net Income / Total Assets

= Net Income + Interest After tax / Total Assets

= [210 + 120(1 -0.3)] / 2000

= 294 / 2000 = 14.7%

2) Return on Equity = Net Income / Shareholders Equity

= Net Income / Common Stock + Retained earnings

= 115000 / (150000 + 50000)

= 115000 / 200000 = 57.5%

3) B&B used cash from operations to buy long-term assets and to repay debt Because there is a Cash Inflow from operating Activities & Cash Outflow from both Investing & Financing activities. Cash Outflow in Investing activities can be a result of purchasing long term assets/ investments & Cash Outflow in Financing activities can be a result of repayment of Debts & loans.

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