Analyzing Profitability) In? 2016, the Allen Corporation had sales of $ 64 ?mill
ID: 1171113 • Letter: A
Question
Analyzing Profitability) In? 2016, the Allen Corporation had sales of
$ 64
?million, total assets of
$ 41
?million, and total liabilities of
$ 19
million. The interest rate on the? company's debt is
6.4
?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
?$nothing
million. ? (Round to two decimal? places.)
Explanation / Answer
a) Firms 2016 Net Operating Income and Net Income
Hence the Net Operating profit = $6.4 million
and, Net income = $3.37 million
b) Firms operating return on assets and return on equity:
Operating return on assets = Net Operating Income / Net Assets
= 6.4 / 41 = 15.61%
Return on equity = Net Income / Shareholders Equity
= 3.37/22 = 15.31%
Particulars Amount Sales $64 Operating profit {operating profit margin10%hence 64*10%)} 6.4 less : interest on debts (6.4%of $19million) 1.216 Profit after interest before tax 5.184 Less: tax @35% 1.8144 Net profit after tax 3.37