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Required information Excel Analytics 16-2 (Static) Return on Equity (ROE) [LO16-3, 16-4, 16-5] Edman Company is a merchandiser that has provided the following balance sheet

Required information

Excel Analytics 16-2 (Static) Return on Equity (ROE) [LO16-3, 16-4, 16-5]

Edman Company is a merchandiser that has provided the following balance sheet and income statement for this year.

Beginning Balance Ending Balance
Assets
Cash $ 62,800 $ 150,000
Accounts receivable 160,000 180,000
Inventory 230,000 240,000
Property, plant & equipment (net) 833,000 793,000
Other assets 37,000 37,000
Total assets $ 1,322,800 $ 1,400,000
Liabilities & Stockholders Equity
Accounts payable $ 70,000 $ 80,000
Bonds payable 550,000 550,000
Common stock 410,000 410,000
Retained earnings 292,800 360,000
Total liabilities & stockholders equity $ 1,322,800 $ 1,400,000

This Year
Sales $ 2,500,000
Variable expenses:
Cost of goods sold 1,600,000
Variable selling expense 240,000
Total variable expenses 1,840,000
Contribution margin 660,000
Fixed expenses:
Fixed selling expenses 220,000
Fixed administrative expenses 300,000
Total fixed expenses 520,000
Net operating income 140,000
Interest expense (8%) 44,000
Net income before tax 96,000
Tax expense (30%) 28,800
Net income $ 67,200

Excel Analytics 16-2 (Static) Part 4

4. Refer to the Requirement 4 ROE Diagram tab within your template. For alternative 1, complete the diagram by using appropriate formulas and reference cells. (In some instances your formulas and reference cells will refer to the Requirement 3 Financials tab.)

a. Which choice shows the formulas used to compute the net operating income and average total assets?

b. What is this alternatives estimated net profit margin percentage, total asset turnover, equity multiplier, and return on equity (ROE)?

c. If the company pursues this alternative, would it cause next years ROE to be greater than, less than, or equal to this years ROE (as computed in requirement 2b)?

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