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    ROE = .20(TA) / .40(TA) = .20 / .40 = 50% ROE = .35(TA) / .60 (TA) = .35 / .60 = 58.33%

    23. This problem requires you to work backward through the incomestatement. First, recognize thatNet income = (1 t)EBT.Plugging in the numbers given and solving for EBT, we get:EBT = 9,200 / 0.66 = 13,939.39Now, we can add interest to EBT to get EBIT as follows:EBIT = EBT + Interest paid = 13,939.39 + 3,250 = 17,189.39

    Thus, the cash coverage ratio:CCR = (EBIT + Depreciation) / Interest = (17,189.39 + 2,125) / 3,250 =5.94 times

    Pg 8526. Short-term solvency ratios:Current ratio = Current assets / Current liabilitiesCurrent ratio 2006 = ZAR 7,828 / ZAR 1,808 = 4.33 timesCurrent ratio 2007 = ZAR 8,322 / ZAR 2,320 = 3.59 times

    Quick ratio = (Current assets Inventory) / Current liabilitiesQuick ratio 2006 = (ZAR 7,828 4,608) / ZAR 1,808 = 1.78 timesQuick ratio 2007 = (ZAR 8,322 4,906) / ZAR 2,320 = 1.47 times

    Cash ratio = Cash / Current liabilitiesCash ratio 2006 = ZAR 815 / ZAR 1,808 = 0.45 timesCash ratio 2007 = ZAR 906 / ZAR 2,320 = 0.39 times

    22. The solution requires substituting two ratios into a third ratio. Rearranging D/TA: Firm A Firm B D / TA = .60 (TA E) / TA = .60 (TA / TA) (E / TA) = .60 1 (E / TA) = .60 E / TA = .40 E = .40(TA) D / TA = .40 (TA

    E) / TA = .40 (TA / TA) (E / TA) = .40 1 (E / TA) = .40 E / TA = .60 E = .60(TA) Rearranging ROA, wefind: NI / TA = .20 NI = .20(TA) NI / TA = .35 NI = .35(TA) Since ROE = NI / E, we can substitute the aboveequations into the ROE formula, which yields: ROE = .20(TA) / .40(TA) = .20 / .40 = 50% ROE = .35(TA) / .60(TA) = .35 / .60 = 58.33%

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    22. The solution requires substituting two ratios into a third ratio. Rearranging D/TA: Firm A Firm B D / TA = .60 (TA E) / TA = .60 (TA / TA) (E / TA) = .60 1 (E / TA) = .60 E / TA = .40 E = .40(TA) D / TA = .40 (TA

    E) / TA = .40 (TA / TA) (E / TA) = .40 1 (E / TA) = .40 E / TA = .60 E = .60(TA) Rearranging ROA, wefind: NI / TA = .20 NI = .20(TA) NI / TA = .35 NI = .35(TA) Since ROE = NI / E, we can substitute the aboveequations into the ROE formula, which yields: ROE = .20(TA) / .40(TA) = .20 / .40 = 50% ROE = .35(TA) / .60(TA) = .35 / .60 = 58.33%

    22. The solution requires substituting two ratios into a third ratio. Rearranging D/TA: Firm A Firm B D / TA = .60 (TA E) / TA = .60 (TA / TA) (E / TA) = .60 1 (E / TA) = .60 E / TA = .40 E = .40(TA) D / TA = .40 (TA

    E) / TA = .40 (TA / TA) (E / TA) = .40 1 (E / TA) = .40 E / TA = .60 E = .60(TA) Rearranging ROA, wefind: NI / TA = .20 NI = .20(TA) NI / TA = .35 NI = .35(TA) Since ROE = NI / E, we can substitute the aboveequations into the ROE formula, which yields: ROE = .20(TA) / .40(TA) = .20 / .40 = 50% ROE = .35(TA) / .60(TA) = .35 / .60 = 58.33%

    22. The solution requires substituting two ratios into a third ratio. Rearranging D/TA: Firm A Firm B D / TA = .60 (TA E) / TA = .60 (TA / TA) (E / TA) = .60 1 (E / TA) = .60 E / TA = .40 E = .40(TA) D / TA = .40 (TA

    E) / TA = .40 (TA / TA) (E / TA) = .40 1 (E / TA) = .40 E / TA = .60 E = .60(TA) Rearranging ROA, wefind: NI / TA = .20 NI = .20(TA) NI / TA = .35 NI = .35(TA) Since ROE = NI / E, we can substitute the aboveequations into the ROE formula, which yields: ROE = .20(TA) / .40(TA) = .20 / .40 = 50% ROE = .35(TA) / .60(TA) = .35 / .60 = 58.33%


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