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Chapter 2: 11BP a (page 79)
Baker Oats had an asset turnover of 1.6 times per year.
a. If the return on total assets (investment) was 11.2 percent, what was Baker’sprofit margin?
The profit margin of the company is 7%.
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Perez Corporation has the following financial data for the years 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(8,000,000 | \)10,000,000 |
Cost of goods sold | 6,000,000 | 9,000,000 |
Inventory | 800,000 | 1,000,000 |
c. What conclusions can you draw from part a and part b?
What is free cash flow? Why is it important to leveraged buyouts?
Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?
Nova Electrics anticipates cash flow from operating activities of \(6 million in 20X1. It will need to spend \)1.2 million on capital investments to remain
competitive within the industry. Common stock dividends are projected at
\(.4 million and preferred stock dividends at \).55 million.
a. What is the firm’s projected free cash flow for the year 20X1?
b. What does the concept of free cash flow represent?
Vriend Software Inc.’s book value per share is \(15.20. If earnings per share is\)1.88 and the firm’s stock trades in the stock market at 3.5 times book value pershare, what will the P/E ratio be? (Round to the nearest whole number.)
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