Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

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Question:

Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

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Answer:(a) 4.2% (b) 0.52Explanation:SolutionThe sale of total assets = 1.4Return on assets and PAT/assets= 6%ROE PAT/Equity =9%(a)Profit margin/PAT/Sales is defined as follows:profit margin = ROA/(Sales/Total assets)= 6%/1.4 = 0.42 = 4.2%(b) ROE=profit margin X*Sales/Assets X (Assets/Equity)= Assets/Equity=9%/ =(4.2%*1.4) 9% (0.058)= 0.005292 = 0.52Equity/assets 0.52Debt assets=1- equity/assets    0.52

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