Written Assignment 2 Answer the following end-of-chapter problems. [CO 2, CO 3]

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Written Assignment 2
Answer the following end-of-chapter problems. [CO 2, CO 3]
Chapter 3: Problem 4
Williams Oil Company had a return on stockholders’ equity of 18 percent during 2013. Its total asset turnover was 1.0 times, and its equity multiplier was 2.0 times. Calculate the company’s net profit margin.
Chapter 3: Problem 17
Sun Minerals, Inc. is considering issuing additional long-term debt to finance an expansion. Currently, the company has $50 million in 10 percent debt outstanding. Its after-tax net income is $12 million, and the company is in the 40 percent tax bracket. The company is required by the debt holders to maintain its times interest earned ratio at 3.5 or greater.
a. What is the present coverage (times interest earned) ratio?
b. How much additional 10 percent debt can the company issue now and maintain its times interest ratio at 3.5? (Assume for this calculation that earnings before interest and taxes remain at the present level.)
c. If the interest rate on additional debt is 12 percent, how much unused “debt capacity” does the company have?
Chapter 4: Problem 6
The Podrasky Corporation is considering a $200 million expansion program (capital expenditure) next year. The company wants to know approximately how much additional financing (if any) will be required if it decides to go through with the expansion program. The company currently has $400 million in net fixed assets on it books. Next year, the company expects to earn $80 million after interest and taxes. The company also expects to maintain its present level of dividends, which is $15 million. If the expansion program is accepted, the company expects its inventory and accounts receivables each to increase by approximately $20 million next year. Long-term debt retirement obligations total $10 million for next year, and depreciation is expected to be $80 million. The company maintains a cash balance of $5 million, which is sufficient for its present operations. If the expansion is accepted, the company feels it should increase its end-of-year cash balance to $8 million because of the increased level of activities. For planning purposes, assume no other cash flow changes for next year.

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