Acc644 Modules 4-6 Questions And Solutions

This study source was downloaded by 100000865965430 from CourseHero.com on 07-15-2023 04:02:21 GMT -05:00https://www.coursehero.com/file/60567490/ACC644-Modules-4-6-SMdocx/ Solutions for Module 4-6E4-34. (30 minutes) a.($ millions)ROE .................................................. $9,938 / [($48,663 + $46,878) / 2] = 20.80%b.($ millions)ROA ................................. $9,938 / [($110,903+ $90,266) / 2] = 9.88%Financial leverage (FL) ..... [($110,903+ $90,266) / 2] / [($48,663 + $46,878) / 2] = 2.106 c. ($ millions)Profit margin (PM) ............................ $9,938 / $38,226 = 26.00% Asset turnover (AT) ........................... $38,226 / [($110,903+ $90,266) / 2] = 0.380d. ROE = PM AT FL = 26% 0.380 2.106 = 20.81% (small rounding difference)E4-35. (30 minutes)a.($ millions)ROE .................................................. $1,072 / [($4,250 + $5,378) / 2] = 22.27%RNOA ............................................... $1,297 / [($10,781 + $10,441) / 2] = 12.23%b.($ millions) NOPM = NOPAT / Sales NOAT = Sales / Average NOAMacys $1,072 / $27,079 = 4.79% $27,079/ [($10,781+$10,441)/2] = 2.55c. The ratio of RNOA to ROE is 55% (12.23% / 22.27%). Macys debt is financing assetsthat earn a return in excess of the cost of debt, thus improving the returns toshareholders. In this case, financial leverage is increasing the return to shareholders. Wecan compute the nonoperating return as ROE - RNOA = 22.27% - 12.22% = 10.05%.a.1This study source was downloaded by