Economics Homework Help

Part A: Ratio Analysis

Attached are the financial statements for Smith Company, Inc. Use the financial statements to answer the questions below

• Calculate and interpret the return on assets using the Dupont Method for the four years of data.
• Calculate and interpret the return on equity using the Modified Dupont Method all four years of data.

Information for calculating the ROA and ROE using the Dupont Method for three competitors to Smith Company, Inc. is also provided below. You will use this information in Part D.

Format Table

(2018)	Competitor 1	Competitor 2	Competitor 3
Net Profit Margin	0.082	0.11	0.03
Total Asset Turnover	0.88	0.9	0.55
ROA	0.07216	0.099	0.0165
FLM	3.3	2.5	5.5
ROE	0.238128	0.2475	0.09075

Part B: Stock Valuation

• Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.

Format Table

	Smith Company, Inc.	Competitor 1	Competitor 2	Competitor 3
Beta	1.4	1.7	1.2	0.9
Dividend	$2.00	$3.25	$2.00	$1.25
Price	$26.00	$33.00	$45.00	$20.00
Growth	3.5%	3.5%	5.5%	1.5%

Part C: Dividend Policy

• Use the information provided to discuss the dividend policy of the four listed firms over the past four years.

Format Table

		2018	2017	2016	2015
Smith Company, Inc.
	Dividend	$2.00	$2.00	$2.00	$2.00
	Net Income	$3,978,000	$4,931,000	$5,220,000	$5,652,000
Competitor 1
	Dividend	$3.25	$0.75	$1.20	$1.00
	Net Income	$6,111,000	$5,408,000	$5,576,000	$5,456,000
Competitor 2
	Dividend	$2.50	$2.50	$2.00	$1.00
	Net Income	$5,547,000	$5,160,000	$4,823,000	$4,637,000
Competitor 3
	Dividend	$1.25	$0.55	$0.55	$0.55
	Net Income	$4,543,000	$3,786,000	$3,711,000	$3,657,000

Part D: Analysis

• You are working as a financial analyst. Your manager has asked you to prepare a presentation on whether Smith Company, Inc. is a good investment opportunity. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each part