86 Part 1 Assessing and Managing Performance PROBLEMS 1. Star Inc. has year 1 revenues of $80 million, net income of $9 million, assets of $65 million, and equity of $40 million, as well as year 2 revenues of $87 million, net income of $22 million, assets of $70 million, and equity of $50 million. Calculate Star's return on equity (ROE) for each year based on the DuPont method and compare it with a direct ROE measure. Next, explain why the firm's ROE changed between year 1 and year 2. 2. Nextime Ltd. has operating profits (EBIT) of $87 million, a tax rate of 35 percent, net working capital of $129 million, and fixed assets of $285 million. Calculate Nextime's return on invested capital, or ROIC. Then describe three methods by which a firm can increase its ROIC. 3. BE Enterprises has fixed costs of $50 million. Its gross margin percentage is 18 percent. What sales level must it achieve in order to break even? 4. Fixem Co. has revenue of $125 million, property and equipment of $42 million, and accumulated depre- ciation and amortization of $6 million. Estimate the fixed asset turnover ratio. 5. Wally Wholesale has revenue of $487,000, end-of- year receivables of $112,000, account payables of $70,000, and inventory of $91,000. Assume pur- chases equal cost of sales of $372,000. Estimate Wally Wholesale's age of inventory, age of receivables, and age of payables. 6. Quick-E Inc's current assets consist of cash of $5 million, account receivables of $27 million, inventory of $37 million, and it has current liabilities of $48 million. Calculate Quick-E's current ratio and quick ratio. 7. Deb Co. has interest-bearing debt of $122 million, non-interest-bearing debt of $33 million, and equity of $76 million. Calculate Deb Co's debt-to-assets, debt-to-equity, and long-term-debt-to-capital ratios. 8. IOU Inc. has EBIT of $58,000, depreciation and amortization of $12,000, interest expenses of $21,000, principal repayments of $17,000, and a tax rate of 35 percent. Calculate IOU Inc's interest coverage ratio and debt service coverage ratio. 9. Using Home Depot's 2010 and 2011 balance sheets in Figure 3.2 and statements of earnings in Figure 3.3 in Chapter 3, set up the ratios presented in Figure 4.4 for Home Depot for 2010 and 2011, indicating the numerator and denominator of each. Confirm the answers presented in Figure 4.4. 10. Which financial statement presents information related to changes in retained earnings and share repurchase