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Last year, Stevens Inc. had sales of $405 comma 000, with a cost of goods sold...

Last year, Stevens Inc. had sales of $405 comma 000, with a cost of goods sold of $110 comma 000. The firm's operating expenses were $ 133 comma 000, and its increase in retained earnings was $53 comma 000. There are currently 22 comma 100 common stock shares outstanding and the firm pays a $1.57 dividend per share. a. Assuming the firm's earnings are taxed at 34 percent, construct the firm's income statement. b. Compute the firm's operating profit margin. c. What was the times interest earned?

Expert Solution

Answer (a):

Stevens Inc.

Number of common stock shares outstanding = 22,100

Firm pays dividend per share = $1.57

Total dividend payment = 22100 * 1.57 = $34,697

Increase in retained earnings = $53,000

Net income = Dividend payment + Increase in retained earnings

= 34697 + 53000

= $87,697

Earnings before tax (EBT) = Net Income / (1 - Tax rate) = 87697 / (1 - 34%)

= $132,874.24

EBIT = Sales - Cost of Goods sold - Operating expenses = 405000 - 110000 - 133000 = $162,000

Hence:

Interest = EBIT - EBT = 162000 - 132874.24 = $29,125.76

Income statement is as follows:

Answer (b):

Firm's operating profit margin = Operating Profit (EBIT) / Sales = 162000 / 405000 = 40%

Firm's operating profit margin = 40%

Answer (c):

Times interest earned = EBIT / Interest expense = 162000 / 29175.76 = 5.56

Times interest earned = 5.56

jeff jeffy answered 1 year ago

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