Question

In​ 2016, the Allen Corporation had sales of $67 million, total assets of $40 million, and total liabilities of $23 million. The interest rate on the​ company's debt is 6.2 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.)

Answer 1

Req a:
Total sales			67,000,000
Operating profit margin			11%
Net Operating income			7370000
Less: Interest expenses			1426000
(23000,000*6.20%)
Net income before tax			5944000
Less: Tax @ 35%			2080400
Net income after tax			3863600
Req b:
Net income after tax			3863600
Divide: Total assets			40,000,000
Return on Total assets			9.66%
Equity: Total assets - Total Liabilities
	40 Million - 23 million = 17 million
Net income after tax			3863600
Divide: Stockholder's equity			17,000,000
Return on Stockholder's equity			22.73%