Question

​(Analyzing Profitability) In​ 2016, the Allen Corporation had sales of

$ 68 million, total assets of

$46 million, and total liabilities of

15 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

11

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

a) Since the operating profit margin is 11%, opertaing profit is the 11% of Sales. Hence, Net operating income = 11% of sales Net operating income = 11% of $68 million Net operating income = $7.48 million Net income Net income Net income Net income Net income Net income Net operatig income - Interest expense - Tax expense $7.48 million - 5.7% of $15 million - Tax expense $7.48 million - $0.855 million - Tax expense $6.625 million - Tax expense $6.625million - 35% of $6.625million $4.306 million b.) Operating return on Assets = Operating income / Assets Operating return on Assets = $7.48 million / $46 million Operating return on Assets = 0.1626 or 16.26 % Total Assets = $46 million = Total Equity = Total Equity = Total Liabilities + Total Equity $15 million + Total Equity $46 million - $15 million $31 million Return on equity = Net income / Equity * 100 Return on equity = $4.306 million $31 million * 100 Return on equity = 13.89%