Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 4, Problem 3SP
a)
Summary Introduction
To prepare: Income statement
b)
Summary Introduction
To prepare: Operating profit margin
c)
Summary Introduction
To prepare: Times interest earned
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Barton Industries has operating income for the year of $3,100,000 and a 38% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 5%. What is the firm's EVA? Round your answer to the nearest dollar, if necessary.
Herring Corporation has operating income of $230,000 and a 25% tax rate. The firm has short-term debt of $119,000, long-term debt of $302,000, and common equity of $421,000. What is its return on invested capital?
Use the information below to build a properly formatted income statement.
A: The firm has 25,280,000 shares outstanding and its earnings per share is $2.40. Calculate Net Income.
B: The firm's corporate tax rate is 40%. Calculate the firm's EBT.
C: After completing A and B above, what is the firm's corporate tax expense?
D: The firm's operating income is 1.80 times its Net Income. Determine the firm's EBIT.
E: Given your answer to D, calculate the firm's Interest Expense.
F: After completing the above: Gross Profit is 18.00 times its Interest Expense. Calculate Gross Profit.
G: Finally, the firm's Revenue is 1.50 times its EBIT. Calculate the firm's Revenue.
INSTRUCTIONS: Write ratios involving dollar amounts out to the penny, with no dollar sign: 1000.00.
All ratios and interest rates should be calculated as follows: 11.28 (no percent sign)
For this problem:
Net Income =
Earnings before Taxes =
Тах еxpens 3
Earnings before Taxes & Interest =
Interest expense =
Gross profit =
Revenue =
Chapter 4 Solutions
Foundations Of Finance
Ch. 4 - Describe the five-question approach to using...Ch. 4 - What are the limitations of industry average...Ch. 4 - What is the difference between a firms gross...Ch. 4 - Prob. 9RQCh. 4 - Prob. 1SPCh. 4 - Prob. 2SPCh. 4 - Prob. 3SPCh. 4 - (Price/ book) Chang, Inc.s balance sheet shows a...Ch. 4 - Prob. 5SPCh. 4 - (Ratio analysis) The balance sheet and income...
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- Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the firm's EVA?arrow_forwardb. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?arrow_forwardThe Anderson Corporation (an all-equity-financed firm) has a sales level of $300,000 with a 12 percent profit margin before interest and taxes. To generate this sales volume, the firm maintains a fixed-asset investment of $150,000. Currently, the firm maintains $50,000 in current assets. a) Determine the total asset turnover for the firm and compute the rate of return on total assets before taxes. b) Compute the before-tax rate of return on assets at different levels of current assets starting with $10,000 and increasing in $15,000 increments to $100,000. c) If the new current assets were financed with long-term debt at 15 percent interest, what would be the before-tax interest "cost" if the new current assets added equals $40,000?arrow_forward
- (Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,800,000. In addition, the firm pays taxes at 35 percent and will owe $307,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 62 percent of sales and operating expenses will total 33 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ $ $ $ 14800000 (9424000) 5376000 (4884000) (307000) (5180000)arrow_forwardLast year SG Corporation had P5 million in operating income (EBIT). The company had a net depreciation expense of P1 million and an interest expense of P1 million; its corporate tax rate was 40%. The company has P14 million in operating current assets and P4 million in operating current liabilities; it has P15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10%. Assume that SG's only noncash item was depreciation. If total net operating capital in the previous year was P24 million, what was the company’s free cash flow (FCF) for the year? Sample format: 1,111,111arrow_forwardMetlock Enterprises is capitalized 40% with debt and 60% with equity. Its average debt rate is 7%, and its average equity rate is 9%. Metlock's best-performing segment earned operating income of $204,000 using invested capital of $1,270,000. The company's tax rate is 22%. Calculate this segment's EVA this year. EVA $ 54980 If its EVA last year was $37,000 based on the same WACC and the same asset base, how much after-tax operating income did it earn last year? After-tax operating income 181000arrow_forward
- The Bedding Division of Homestore Corporation had sales of $9,000,000 and operating income of $1,620,000 last year. The total assets of the Bedding Division were $2,500,000, while current liabilities were $310,000. Homestore Corporation's target rate of return is 11%, while its weighted average cost of capital is 9%. The effective tax rate for the company is 25%. What is the Bedding Division's capital turnover? OA. 29 OB. 3.6 OC. 8.1 O D. 5.6 (...)arrow_forward(Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,600,000. In addition, the firm pays taxes at 35 percent and will owe $294,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 63 percent of sales and operating expenses will total 27 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Complete the pro-forma income statement below: (Round to the nearest dollar.) Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ $ $ $ $ Carrow_forwardFor 2018, Gourmet Kitchen Products reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 10% and its federal-plus-state income tax rate was 35%. What was the firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2018? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.arrow_forward
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