Question

5 Williams Incorporated has the following data: Assets: $1,500,000 Interest rate: 6.5% Debt ratio: 27.0% Total Assets turnover: Tax rate: 40.0% Profit margin: 12% 1.48 What is the company's Operating Income? a. $266,400 b. $292.725 c. $470,325 d. $444,000 e. None of the above 100,000 The Du Pont equations for a company and its industry are shown belov ROE = PM X AT XEM Company: 30.44% = 12% x 1.51 X 1.68 Industry: 20.59% = 13% x 1.32 x 1.20 Which of the following statements is most TRUE? a. Because the equity multiplier is larger, the company uses less deb b. Out of sales revenue generated, the company lost 88% to exp losing 89% to expenses. c. The company produced more sales revenue with its assets than t Ti 1 10 111 odotes

Answer 1

5.

Assets = $ 1500000

Interest rate = 6.5%

Debt ratio = 27%

Total asset turnover = 1.48

Tax rate = 40%

Profit margin = 12%

Solution :-

Debt = Assets x debt ratio - $ 1500000 X 27% = $40sooo Interest - Debt x interest rate = $405000 X 6.5% - $26325 – Total Assets Turnover Sales Revenue Assets 1.48 - = sales Revenue $ 15ooooo sales Revenue = $1500000 x 1.48 = $2220000 Net Income - Sales Revenue & Profit margin = $2220000 X 12% - $266400

EBT = Net Income - tax rate $ 266400 - 0.40 $266400 – $444000 0.60 Taxes = EBT X Tax rate $444000 X 0.40 = $177600 Now, operating income - Net Income t Interest & Taxes - $266400 & $26325 + $177600 = $470325 Thus, the company's operating income is $ 470325