1) An investor is considering starting a new business. The company would require $550,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 21.5% return on the invested capital, which means that the firm must have an ROE of 21.5%. How much net income must be expected to warrant starting the business?
2) Helmuth Inc.'s latest net income was $1,250,000, and it had 275,000 shares outstanding. The company wants to pay out 35% of its income as dividends. What dividend per share should it declare?
3) Heaton Corp. sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $475,000, and its year-end receivables were $80,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments.
4) Last year Mason Inc. had a total assets turnover of 2.25 and an equity multiplier of 1.75. Its sales were $185,000 and its net income was $8,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,400 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?