Questions on Business and economics



Don't use plagiarized sources. Get Your Custom Essay on
Questions on Business and economics
Just from $10/Page
Order Essay

(Question 4 is composed of two parts.) The DuPont formula defines the net return on shareholders’ equity as a function of the following components:

·         Operating margin

·         Asset turnover

·         Interest burden

·         Financial leverage

·         Income tax rate

Using only the data in the table shown below:

a.       Calculate each of the five components listed above for 2010 and 2014, and calculate the return on equity (ROE) for 2010 and 2014, using all of the five components. Show calculations.

b.      Briefly discuss the impact of the changes in asset turnover and financial leverage on the change in ROE from 2010 to 2014

INCOME STATEMENT DATA                 2010          2014

Revenues                                                       $542          $979

Operating income                                            38              76

Depreciation and amortization                         3                9

Interest expense                                                3                0

Pretax income                                                 32               67

Income taxes                                                   13              37

Net income after tax                                        19             30

BALANCE SHEET DATA                          2010           2014 

Fixed assets                                                   $41             $70

Total assets                                                   245              291

Working capital                                            123             157

Total debt                                                      16                 0

Total shareholders’ equity                            159             220


David Wright, CFA, an analyst with Blue River Investments, is considering buying a Montrose Cable Company corporate bond. He has collected the following balance sheet and income statement information for Montrose as shown in Exhibit 10.10. He has also calculated the three ratios shown in Exhibit 10.11, which indicate that the bond is currently rated “A” according to the firm’s internal bond-rating criteria shown in Exhibit 10.13. Wright has decided to consider some off-balance-sheet items in his credit analysis, as shown in Exhibit 10.12. Specifically, Wright wishes to evaluate the impact of each of the off-balance-sheet items on each of the ratios found in Exhibit 10.11.

a. Calculate the combined effect of the three off-balance-sheet items in Exhibit 10.12 on each of the following three financial ratios shown in Exhibit 10.11.

i.EBITDA/interest expense

ii.Long-term debt/equity

iii.Current assets/current liabilities

The bond is currently trading at a credit premium of 55 basis points. Using the internal bond-rating criteria in Exhibit 10.13, Wright wants to evaluate whether or not the credit yield premium incorporates the effect of the off-balance-sheet items.

b.State and justify whether or not the current credit yield premium compensates Wright for the credit risk of the bond based on the internal bond-rating criteria found in Exhibit 10.13.



Balance Sheet___________________________________

Current assets                                                        $4,735

Fixed assets                                                           43,225

   Total assets                                                       $47,960

Current liabilities                                                  $4,500

Long-term debt                                                     10,000

      Total liabilities                                              $14,500

Shareholders’ equity                                             33,460

    Total liabilities & shareholders’ equity           $47,960        

Income Statement__________________________________

Revenue                                                               $18,500

Operating & administrative expenses                    14,050

Operating income                                                    4,450

Depreciation & amortization                                  1,675

Interest expense                                                        942

Income before income taxes                                $1,833

Taxes                                                                        641

      Net income                                                     $1,192


EBITDA/interest expense                                      4.72

Long-term debt/equity                                            0.30

Current assets/current liabilities                             1.05

Credit yield premium over U.S. Treasuries            55 basis points


·         Montrose has guaranteed the long-term debt (principal only) of an unconsolidated affiliate. This obligation has a present value of $995,000.

·         Montrose has sold $500,000 of accounts receivable with recourse at a yield of 8 percent.

·         Montrose is a lessee in a new noncancelable operating leasing agreement to finance transmission equipment. The discounted present value of the lease payments is $6,144,000 using an interest rate of 10 percent. The annual payment will be $1,000,000.


Bond RatingInterest Coverage (EBITDA/interest expenseLeverage (long-term debt/equity)Current Ratio (current assets/current liabilitiesCredit Yield Premium over US Treasuries (in basis points)
AAABBBBB5.00 to 6.004.00 to 5.003.00 to 4.002.00 to 3.000.25 to .300.30 to 0.400.40 to 0.500.50 to 0.601.15 to 1.251.00 to 1.150.90 to 1.000.75 to 0.9030 bps50 bps100 bps125 bps



Over the long run, you expect dividends for BBC in Problem 4 to grow at 8 percent and you require 11 percent on the stock. Using the infinite period DDM, how much would you pay for this stock?


The Shamrock Dogfood Company (SDC) has consistently paid out 40 percent of its earnings in dividends. The company’s return on equity is 16 percent. What would you estimate as its dividend growth rate?


What P/E ratio would you apply if you learned that SDC had decided to increase its payout to 50 percent? (Hint: This change in payout has multiple effects.)

Get Professional Assignment Help Cheaply

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Our essay writers are graduates with diplomas, bachelor’s, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.

Why Choose Our Academic Writing Service?


  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

How It Works

1.      Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2.      Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3.      Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4.      Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

Read more

Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

Read more

Privacy policy

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

Read more

Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
error: Content is protected !!
Open chat
You can contact our live agent via WhatsApp! Via +1 817 953 0426

Feel free to ask questions, clarifications, or discounts available when placing an order.

Order your essay today and save 30% with the discount code STARS