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.)

Answer 1

a) Firms 2016 Net Operating Income and Net Income

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

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%