The following information is from reformulated financial statements (in millions): Operating assets a. Short-term marketable securities Operating liabilities Bonds payable Book value Sales Operating expenses Interest revenue Interest expense Tax expense Earnings (net) 2012 $2,700 2011 $2,500 100 400 (300) (1,300) (100) (1,400) $1,200 $1,400 $2,100 (1,677) 27 (137) (106) $207 (1) Calculate ROCE for 2012; use average book value in the denominator. (2) Calculate RNOA for 2012; use average net operating assets in the denominator. (3) Show the effect of financial leverage for this firm. (4) Calculate the net dividends for 2012. (5) What would be ROCE for 2012, if the firm has not paid out any dividend in 2012? Explain the effect of dividend payment. b. The firm's short-term borrowing rate is 4.5 percent after tax. Supply the numbers for the formula Page 1 of 2 RNOA ROOA+ (OLLEV × OLSPREAD) c. Supply the numbers for the formula: ROCE=PM ATO + [Financial leverage × (RNOA - Borrowing cost)]
The following information is from reformulated financial statements (in millions): Operating assets a. Short-term marketable securities Operating liabilities Bonds payable Book value Sales Operating expenses Interest revenue Interest expense Tax expense Earnings (net) 2012 $2,700 2011 $2,500 100 400 (300) (1,300) (100) (1,400) $1,200 $1,400 $2,100 (1,677) 27 (137) (106) $207 (1) Calculate ROCE for 2012; use average book value in the denominator. (2) Calculate RNOA for 2012; use average net operating assets in the denominator. (3) Show the effect of financial leverage for this firm. (4) Calculate the net dividends for 2012. (5) What would be ROCE for 2012, if the firm has not paid out any dividend in 2012? Explain the effect of dividend payment. b. The firm's short-term borrowing rate is 4.5 percent after tax. Supply the numbers for the formula Page 1 of 2 RNOA ROOA+ (OLLEV × OLSPREAD) c. Supply the numbers for the formula: ROCE=PM ATO + [Financial leverage × (RNOA - Borrowing cost)]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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