Chapter 4-1

a) Kaye's Kitchenware has a market/book ratio equal to 1. Its stock price is $13 per share and it has 5.0 million shares outstanding. The firm's total capital is $130 million and it finances with only debt and common equity. What is its debt-to-capital ratio? Round your answer to two decimal places.

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b) Precious Metal Mining has $14 million in sales, its ROE is 18%, and its total assets turnover is 2.5. Common equity on the firms balance sheet is 50% of its total assets. What is its net income? Do not round intermediate calculations. Round your answer to the nearest cent.

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c) Pacific Packaging's ROE last year was only 4%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $215,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $435,000 on sales of $5,000,000, and it expects to have a total assets turnover ratio of 3.9. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

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