Question

In​ 2016, the Allen Corporation had sales of $ 68 ​million, total assets of $ 50 ​million, and total liabilities of $ 18 million. The interest rate on the​ company's debt is 5.8 ​percent, and its tax rate is 35 percent. The operating profit margin is 13 percent. a. Compute the​ firm's 2016 net operating income and net income. b. Calculate the​ firm's operating return on assets and return on equity.​ (Hint: You can assume that interest must be paid on all of the​ firm's liabilities.) a. Compute the​ firm's 2016 net operating income and net income. The​ firm's 2016 net operating income is ​$ nothing million. ​ (Round to two decimal​ places.)

Answer 1

Answer:

Explanation:

Sales - $68,000,000

Total assets - $50,000,000

Total Liabilities - $18,000,000

Interest rate - 5.8%

Tax rate - 35%

Profit margin - 13%

a)

1)Net operating income = Sales * Operating profit margin

68,000,000*13%= $8,840,000

2)Net Income =  Operating income -         8,840,000

Interest expense (5.8%* 18,000,000)       (1,044,000)

Income before tax                                      7,796,000

Income tax (30%)                                        (2,338,000)

                                                                    5,458,000

b)

1)Operating return on assets = net operating income /assets *100

= 8,840,000/50,000,000*100= 17.68%

2)Return on equity.

Net income / Equity * 100

Equity = 50,000,000 - 18,000,000 = 32,000,000

5,458,000/32,000,000*100= 17.06%