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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?

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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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