Question

In​ 2016, the Allen Corporation had sales of $ 60 ​million, total assets of $ 45 ​million, and total liabilities of $ 23 million. The interest rate on the​ company's debt is 5.9 ​percent, and its tax rate is 35 percent. The operating profit margin is 14 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 ​$ ____ million. ​ (Round to two decimal​ places.)

Answer 1

Solution a
	Sale	$   60.00	million
	operating profit margin	14%
	Net operating profit	60*14%
	Net operating profit	$     8.40	million
	Total liabilities	$   23.00	million
	Interest rate	5.90%
	Interest payment	23*5.9%
	Interest payment	$     1.36	million
	Net operating income	$     8.40	million
	Interest	$   (1.36)	million
	Profit before tax	$     7.04	million
	Tax @ 35%	$   (2.47)	million
	Net Income	$     4.58	million
Solution b
	Operating income	$     8.40	million
	Total asset	$   45.00	million
	Operating income on assets	8.40/45
	Operating income on assets	18.67%
	Net income for equity	$     4.58	million
	Total asset	$   45.00	million
	Total liabilities	$ (23.00)	million
	Total equity	$   22.00	million
	Return on equity	4.58/22
	Return on equity	20.81%