SHOW YOUR WORK STEP BY STEP, If you don't know the answer do not answer

In the lecture, based on the beginning balance sheet of our shoe company, we examined the effects on revenue, profits and ROE of a 10% increase in quantity of shoes sold. Now analyze the effects of a 10% increase in price per pair sold (the number of pairs sold is unchanged at 200).

Which is better an increase in sales or the same percentage increase in price? Why?

II Further along the lecture, the company expanded its production and sales to 225 pairs by borrowing $2,000 and thereby increasing its assets accordingly.

For this question, instead assume the company expanded by changing its balance sheet to $9,000 in owners equity and $3,000 in debt. In other words, it borrowed $2,000 to expand, as in the lecture example, plus an additional $1,000 in borrowing which it returned to owners it replaced some equity with debt. Recalculate profits and ROE, and perform the DuPont Analysis, examining how each factor changed.

Coverage ratio measures the companys ability to service debt. It is measured as the amount of money available to pay interest divided by the amount of interest that needs to be paid; i.e., the money coming down the waterfall just before it reaches the financing cost cliff divided by the financing cost on that cliff. Compare the coverage ratio in this question to the ratio in the lecture example of $10,000 equity & $2,000 debt case?

III Suppose the IRS imposes a 20% tax on profits. Return to the original situation (200 pairs, 80 price per pair sold, 60 operating cost per pair). How much tax is paid? What are Before-Tax Profits, After-Tax Profits and After-Tax ROE?

Similar to the in-class example, what are the percentage changes in revenue, taxes, before- and after-tax profits due to a ten percent increase in unit sales?

Say a weakening macro-economy causes shoe sales to decline to 110. What are Before-Tax Profits, After-Tax Profits and After-Tax ROE?

Keep sales at 200 pairs. But labor costs (wages, benefits, pensions) jump to 75/pair from 40. Perform the same calculations. Why is this loss making situation qualitatively different from the above?

IV You have a toy store. Your assets consist of $10,400 in inventory, $1,000 in equipment (phones, computers, etc.) and $600 cash. You are capitalized with $10,000 owners equity and $2,000 debt at 6%. Assume your only variable cost are the bikes you purchase from the manufacturer, $60/bike. Your fixed costs total $2500.

During the year you purchased 240 bikes and sold them at $80/bike. But you only paid for half the bikes you bought, the rest were sold to you on credit. What is your ROE for the year? What does your balance sheet look like at the end of the year?