# The Use of Ratio Analysis and The Clientele Effect (Math Problem Sample)

EXCERPT OF THE Math problem

Arrow technology, INC (ATI) has total assets of $10 million and expected operating income (EBIT) of $2.5 million. If ATI uses debt in its capital structure, the cost of this debt will be 12 percent per annum. tHE QUESTION REQUIRED THE USE OF RATIO ANALYSIS. AMONG THE RATIOS USED INCLUDE profitability ratio such as EBIT, RETURN ON EQUITY ET AL..Explain ation on what is meant by the clientele effect

(Name)

(Instructors’ name)

(Course)

(Date)

Section 13-10: Question six

Debt ratio (Debit/total asset)

0%

25%

50%

Total assets

10,000,000

10,000,000

10,000,000

Debt (@ 12% interest)

0

2,500,000

5,000,000

Equity

10,000,000

7,500,000

5,000,000

Total liability and equity

10,000,000

10,000,000

10,000,000

Expected operating income (EBIT)

2,500,000

2,500,000

2,500,000

Less interest (@ 12%)

0

(300,000)

(600,000)

Earnings before tax

2,500,000

2,200,000

1,900,000

Less: income tax @ 40%

(1,000,000)

(880,000)

(760,000)

Earning after tax

1,500,000

1,320,000

1,140,000

Return on equity

15%

17.6%

22.8%

Effects of 20% decrease in EBIT to $2,000,000

Expected operating income (EBIT)

2,000,000

2,000,000

2,000,000

Less: interest (@ 12%)

0

(300,000)

(600,000)

Earnings before tax

2,000,000

1,700,000

1,400,000

Less: income tax @ 40%

(800,000)

(680,000)

(560,000)

Earning after tax

1,200,000

1,020,000

840,000

Return on equity

12%

13.6%

16.8%

Effects of 20% increase in EBIT to $3,000,000

Expected operating income (EBIT)

3,000.000

3,000,000

3,000,000

Less: interest (@ 12%)

0

(300,000)

(600,000)

Earnings before tax

3,000,000

2,700,000

2,400,000

Less: income tax @ 40%

### Other Topics:

- Calculation of Savings and Compound InterestDescription: To help Janette cover her college expense, parents provide Janette with a monthly allowance of $340. Besides, Janette earns $600 per month from the part-time job. Janette has to pay $200 in rent expense and $ 75 per month for her car insurance. Janette plans to spend monthly $80 on clothes, $50 for personal...3 pages/≈825 words| 1 Source | MLA | Accounting, Finance, SPSS | Math Problem |
- Contribution to Sales Ratio and Statement of Financial PositionDescription: An acid test ratio of 0.59 shows that the company many struggles to offsets its current liabilities over the next three months because it is less than one. This means that the company’s current assets are almost of the value as the current liabilities.Therefore, the company ought to come up with alternative...2 pages/≈550 words| No Sources | MLA | Accounting, Finance, SPSS | Math Problem |
- Quantitative Reasoning. Accounting, Finance, SPSS Math ProblemDescription: 2.5 % lie below 60 kg since 25/1000 = 2.5%; for the same reason 2.5 % lie above 88 %. In other words, the middle 95% weigh between 60 kg and 88 kg. Since the distribution is Normal, 95% of the data lies within two standard deviations of the mean...1 page/≈275 words| No Sources | MLA | Accounting, Finance, SPSS | Math Problem |