Question

Student: Date: Instructor: Course: FIN-320-R2880 Principles of Finance 19EW2 Assignment: 4-2 MyFinanceLab Assignment 6. (Related to Checkpoint 4.3) (Analyzing Profitability) In 2016, the Allen Corporation had sales of $68 million, total assets of $48 million, and total liabilities of $18 million. The interest rate on the company's debt is 5.7 percent, and its tax rate is 35 percent. The operating profit margin is 10 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 $ million. (Round to two decimal places.) The firm's 2016 net income is $ million. (Round to two decimal places.) b. Calculate the firm's operating return on assets and return on equity. The operating return on assets is %. (Round to two decimal places.) The return on equity is %. (Round to two decimal places.) https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/finance

Answer 1

Net operating income= Sales × operating profit margin

= 68,000,000×10%

=6,800,000 or 6.80 million

Net income = profit before tax (1-tax rate)

Profit before tax = operating income- intrest expense

Interest expense= interest(debt) rate (total assets- total liabilities)

=@8million ×5.7%

=1.026million

Profit before tax= 6.80 million- 1.026 million

Net income= 5.774 million ×(1-35%)

= 3.75 million

Operating return on assets = operating income/Total assets

= 6.80 million /48million

=14.16%

Return on Equity = net income/total equity

Total equity= total assets - Total Liabilities

=48 million-18 million

=30 million

ROE= 3.75 million/30million= 12.5%

____×____

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