Assignment: Profitability Analysis Exercises And Problems
Do the assigned problems using Summer Peebles, Inc.'s condensed 2014 financial data below:
Assets
Current Assets $250,000.00
Noncurrent Assets $1,750,000.00
Total Assets $2,000,000.00
Liabilities and Equity
Current Liabilities $200,000.00
Noncurrent Liabilities (8% Bonds) $675,000.00
Common Stockholders' Equity $1,125,000.00
Total Liabilities and Equity $2,000,000.00
Additional Information:
• Net income for 2014 is $157,500.
• Income tax rate is 50%.
• Amounts for total assets and shareholders' equity are the same for 2013 and 2014.
• All assets and current liabilities are considered to be operating.
Required:
1. Determine whether leverage (from long-term debt) benefits Rose's shareholders. (Hint: Examine ROCE with and without leverage.)
2. Compute the NOPAT and RNOA (use ending NOA).
3. Demonstrate the favorable effect of leverage given the disaggregation of ROCE and your answer to part (B).
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.