Your company's summarized financial information for the beginning and projected end of the current year is as follows: Beginning of the Year End of the Year (projected) Assets $90,000 $100,000 Liabilities 30,000 30,000 Equity 60,000 70,000 Net Income 15,000 Your company is considering issuing 30 bonds at the end of the year (December 31st). The bonds will pay 8% interest semi-annually for 10 years and the market rate for similar bonds is 5%. Therefore, the total bond proceeds are $37,015.12. Calculate the following ratios with and without the bond issue. Review question: how much did the company pay in dividends this year (if any)

A. Without Bond Issue:

1.Return on Assets15.79%

2. Return on Equity 23.08%

3. Debt Ratio0.3

4. Debt Equity Ratio 0.43

B. If Bonds are issued:

1. Return on Assets 13.21%

2. Return on Equity 23.08%

3. Debt Ratio 0.49

4. Debt Equity Ratio 0.96

C. Dividend $5,000

Explanation:

A. Calculation for without the bond issue

WITHOUT BOND ISSUE:

1. Calculation for Return on Assets using this formula

Return on Assets=Net Income/Average total assets

Let plug in the formula

ANet Income$15,000

BAssets at the beginning of the year$90,000

CAssets at the end of the year$100,000

D=(B+C)/2Average asset$95,000

E=A/D Return on Assets =$15,000/$95,000

Return on Assets =0.157894737*100

Return on Assets=15.79%

2. Calculation for Return on Equity using this formula

Return on Equity =Net Income /Average Shareholders Equity

Let plug in the formula

FShareholders Equity at the Beginning of the year$60,000

GShareholders Equity at the End of the year$70,000

H=(F+G)/2Average Shareholders Equity$65,000

I=A/HReturn on Equity=$15,000/$65,000

Return on Equity=0.230769231*100

Return on Equity =23.08%

3. Calculation for Debt Ratio using this formula

Debt Ratio=Total Liabilities/Total Assets

Let plug in the formula

JTotal Liabilities$30,000

KTotal assets$100,000

L=J/KDebt Ratio=$30,000/$100,000

Debt Ratio=0.3

4. Calculation for Debt Equity Ratio using this formula

Debt Equity Ratio =Total Liabilities/Shareholders Equity

Let plug in the formula

MShareholders Equity$70,000

N=J/MDebt Equity Ratio=$30,000/$70,000

Debt Equity Ratio=0.428571429*100

Debt Equity Ratio=0.43 Approximately

B. Calculation for if bonds are issue

IF BONDS ARE ISSUE

Amount Received from Bond Issue$37,015.12

End of Year Assets =100,000+37015.12

End of Year Assets =$137,015.12

End of Year Liabilities=30000+37015.12End of Year Liabilities=$67,015.12

End of year Equity=$137,015.12-$67,015.12

End of year Equity$70,000

1. Calculation for Return on Assets using this formula

Return on Assets=Net Income/Average total assets

Let plug in the formula

ANet Income$15,000

BAssets at the beginning of the year$90,000

CAssets at the end of the year$137,015.12

D=(B+C)/2Average asset$113,507.56

E=A/DReturn on Assets=$15,000/$113,507.56

Return on Assets=0.132149788*100

Return on Assets=13.21%

2. Calculation for Return on Equity using this formula

Return on Equity=Net Income /Average Shareholders Equity

Let plug in the formula

FShareholders Equity at the Beginning of the year$60,000

GShareholders Equity at the End of the year$70,000

H=(F+G)/2Average Shareholders Equity$65,000

I=A/HReturn on Equity =$15,000/$65,000

Return on Equity=0.230769231*100

Return on Equity=23.08%

3. Calculation for Debt Ratio using this formula

Debt Ratio=Total Liabilities/Total Assets

Let plug in the formula

JTotal Liabilities$67,015

KTotal assets$137,015

L=J/KDebt Ratio=$67,015/$137,015

Debt Ratio=0.48910748

Debt Ratio=0.49 Approximately

4. Calculation for Debt Equity Ratio using this formula

Debt Equity Ratio =Total Liabilities/Shareholders Equity

Let plug in the formula

MShareholders Equity$70,000

N=J/MDebt Equity Ratio=$67,015/$70,000

Debt Equity Ratio=0.957358857

Debt Equity Ratio=0.96 Approximately

C. Calculation for how much did the company pay in dividends this year (if any)

First step is to calculate the Increase in Equity

Increase in Equity=70,000-60,000

Increase in Equity=$10,000

Now let calculate the Dividend using this formula

Dividend=Net Income-Increase in Equity

Let plug in the formula

Dividend =$15,000-$10,000

Dividend=$5,000

Therefore the amount that did the company pay in dividends this year is $5,000

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