Question
Question #2. (15 marks) OA 10,800 OL 1,800 NonOA 1,600 NonOL 600 EQ 10,000 Total 12,400 Total 12,400 Required: (i) Compute B/S items NOA and
Question #2.
(15 marks)
OA 10,800 OL 1,800
NonOA 1,600 NonOL 600
EQ 10,000
Total 12,400 Total 12,400
Required:
(i)
Compute B/S items NOA and NNO.
NOA 10800-1800=9000 NNO 600-1600=-1000
EQ 10000
Total 9000 Total 9000
If NNO is negative, what does that mean? It means it is a net financial asset instead of being a net financial obligation
(ii)
If RNOA =10% and NNEP =5%, construct the underlying I/S
NOPAT 9000*10%=900
NNE -1000*5%=-50
NI 900-(-50)=950
Compute ROE
(iii)
Verify that ROE=RNOA+(RNOA-NNEP)*FLEV. FLEV = NNO/EQ
Compute RNOA as a weighted average of ROE and NNEP
Compute ROE as a weighted average of RNOA and NNEP
Only need question(iii). Thanks.
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