QUESTION 3 Brown Office Supplies recently reported $15,500 of sales, $8,250 of o

Question

QUESTION 3 Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1.750 of depreciation. It had $9,000 of bonds outstanding that carry 7.0% interest rate, and its federal-plus-state i 40%. How much was the firm's earnings before taxes (EBT rate is a. $5,114 Ob. $5,369 OC$4,627 Od.$4,870 QUESTION 4 $20,000,000 of capital, when they purchased new issues Over the years, O'Brien Corporation's stockholders have of stock and allowed to retain some of the firm's earnings. The firm now has 1,000,000 shares of common stock outstanding, and it sells at a price of $38.50 per share. How much value has O'Brien's manage stockholder wealth over the years, i.e., what is O'Brien's MVA? a $18,870,000 b.$20,024,995 c. $18,500,000 0 d. $19,247,400

Explanation / Answer

Question 1:

EBT is earnings before tax

EBIT is earninsg before interest and tax.

EBIT = Sales - Operating Costs - Depreciation

EBIT = 15,500 - 8,250 - 1,750

EBIT = 5500

Interest Expense = 9000 * 7% = 630

Earnings Before Tax (EBT) = 5500 - 630 = $4870 --> Answer

Question 2:

Initial value of capital = $20,000,000

Current Market Value = Number of shares outstanding * Price per share = 1,000,000 * 38.50 = $38,500,000

Value added = 38,500,000 - 20,000,000 = $18,500,000 --> Answer

Question 3

Net Income = Dividends Paid + Change in Retained Earnings

Net Income = 33525 + (197500 - 159600)

Net Income = $71,425

Question 4

Dividend = 1,250,000 * 45% = $562,500

Dividend per share = Total Dividends/Number of Share outstanding

Dividend per Share = $562,500/225000 = $2.50 --> Answer

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