Question

Problem 9-13

Two firms have sales of $1.5 million each. Other financial information is as follows:

Firm	A	B
EBIT	$330,000	$330,000
Interest Expense	30,000	60,000
Income Tax	50,000	15,000
Debt	1,020,000	420,000
Equity	1,250,000	2,130,000

What are the operating profit margins and the net profit margins for these two firms? Round your answers to two decimal places.

Operating profit margins:

Firm A: %

Firm B: %

Net profit margins:

Firm A: %

Firm B: %

What are their returns on assets and on equity? Round your answers to two decimal places.

Return on assets:

Firm A: %

Firm B: %

Return on equity:

Firm A: %

Firm B: %

Answer 1

	Firm A	Firm B
Sales	1,500,000.0	1,500,000.0
EBIT	330,000.0	330,000.0
Operating Profit Margin (EBIT/SALES)	22%	22%
Interest Expense	30,000.0	60,000.0
EBT (EBIT-Interest)	300,000.0	270,000.0
Income Tax	50,000.0	15,000.0
Net Income (EBT-Tax)	250,000.0	255,000.0
Net Profit Margin (Net Income/Sales)	16.7%	17.0%
Debt	1,020,000.0	420,000.0
Equity	1,250,000.0	2,130,000.0
Total Asset (Debt+Equity)	2,270,000.0	2,550,000.0
Return on Asset (Net income/Asset)	11.01%	10.00%
Return on Equity (Net Income/Equity)	20.0%	12.0%