I'm having a few problems with some questions. If anyone can help that would be great.

1) A planner's % of sales model forcasts that sales will grow by 20% next year. If cost of goods sold are proportionate at 70% of sales, then costs of good sold will
a. grow to 90% of sales
b. grow in dollars by 70%
c. not change in dollar terms
d. increase by 20% in dollar terms

I chose A.

2) Which of the followng will not permit a higher internal growth rate, other things equal
a. higher plowback ratio
b. higher debt-to-asset ratio
c. higher return on equity
d. higher return on assets

I chose B

3) Which of the following will allow your firm to achieve its targets 16% ROA with an asset turnover of 2.5%
a. a leverage ratio of .0667
b. a P/E ratio of 14
c. a profit margin of 15%
d. a profit margin of 6.4%

I have no clue on this one.

Any help would be fantastic. Thank you.

For #1 only:)

The answer should be D. Your % of cost of sales to sales remain at 70%. So any % increase in sales will also translate to the same % increase in COS.

Example:

Year 1
Sales 1M
COS 700t

If Sales increase to 1.2M, then COS would increase to (1.2Mx.7) = 840T

840T/700T=120%

Quote:

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Originally Posted by goldenbutterfly

For #1 only:)

The answer should be D. Your % of cost of sales to sales remain at 70%. So any % increase in sales will also translate to the same % increase in COS.

Example:

Year 1
Sales 1M
COS 700t

If Sales increase to 1.2M, then COS would increase to (1.2Mx.7) = 840T

840T/700T=120%

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Thank you for your help. I really appreciate it.