1. BUS 401 BUS401 Week 1 Assignment Ratio
Analysis
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Ratio Analysis
Review the financial information pertaining to Salco Inc. in Study Problem 4-10 on pages 113
and 114 of you text. Answer the following questions in an Excel document. Solve using Excel
formulas (preferred) or clearly write out the steps you took to calculate your answers. Round
any dollar amounts to the nearest dollar ($1,500,074) and any percentages to two decimals
(9.56%).
Calculate Salco’s total asset turnover, operating profit margin, and operating return on assets.
Salco plans to renovate one of its plants, which will require an added investment in plant and
equipment of $1 million. The firm will maintain its present debt ratio of .5 when financing the
new investment and expects sales to remain constant. The operating profit margin will rise to 13
percent. What will be the new operating return on assets for Salco after the plant’s renovation?
Given that the plant renovation in part b occurs and Salco’s interest expense rises by $50,000 per
year, what will be the return earned on the common stockholders’ investment? Compare this rate
of return with that earned before the renovation.
*** Note that Chapter 8 is currently under editorial review for the equation of Common Stock
Valuation. The formula that follows should be used in this assignment:
Expected Rate of Return = (Dividend in Year / Market Price) + GrowthRate
Investor's in Year / (Required Rate of Return - Growth Rate)
Carefully review the Grading Rubric for the criteria that will be used to evaluate your
assignment.