Question

Question 1

For an all equity firm with a total asset turnover of 1, what profit margin would achieve a target ROE of 0.12? Convert the profit margin rate to a percent and report it to the nearest hundredth as in xx.xx % but not entering the percent sign. You would need to calculate the rate to four places before multiplying by 100 to convert to a percent.

Question 2

A balance sheet shows current assets as $5,850, accrued wages and taxes as $990, accounts payable as $933, and notes payable as $971. How much is the net operating working capital?Answer to the nearest cent as in xx.xx without entering the dollar sign.

Answer 1

Answer to Question 1:

For all equity firm:

Return on Equity = Profit Margin * Total Asset Turnover
0.12 = Profit Margin * 1.00
Profit Margin = 0.12 or 12.00%

Answer to Question 2:

Current Liabilities = Accrued Wages and Taxes + Accounts Payable + Notes Payable
Current Liabilities = $990 + $933 + $971
Current Liabilities = $2,894

Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $5,850 - $2,894
Net Working Capital = $2,956

Net Operating Working Capital = Net Working Capital + Notes Payable
Net Operating Working Capital = $2,956 + $971
Net Operating Working Capital = $3,927