Calculate the value of each investment

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Reference no: EM13196119

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.

  1. Calculate the value of each investment based on your required rate of return.
  2. Which investment would you select? Why?
  3. Assume Emerson Electric's managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to parts A and B?
  4. What required rates of return would make you indifferent to all three options?

Reference no: EM13196119

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