20. Amazing Gadgets, Inc. originally forecasted the following financial data for
ID: 2336719 • Letter: 2
Question
20. Amazing Gadgets, Inc. originally forecasted the following financial data for next year Sales $874,000 Cost of goods sold-$589.950, operating expense and depreciation = $125,675 and interest expense-S39875 The firm believes that COGS will always be 67.5% of sales. Suppose the firm wants to achieve a net ncome of $112,500 Assuming the operating costs, depreciation, and interest expense will remain the same, how large must sales be to achieve this goal? Assume a 28.0% tax rate. 1. The current balance sheet for Clean Soils, Inc. lists net fixed assets as $736,000. The fixed assets could currently be sold for $924,000. The balance sheet shows current liabilities of $328,575 and net working capital of $143,860. If all the current accounts were liquidated today, the company would receive $218.400 cash after paying all of its current liabilities at book value. How much larger is market value than book value of the firm's assets today?Explanation / Answer
Solution 20:
Target net income = $112,500
Target before tax income = $112,500 / (1-0.28) = $156,250
Total operating cost, depreciaton and interest expense = $125,675 + $39,875 = $165,550
Required Gross profit to earn target net income = $156,250 + $165,550 = $321,800
Gross profit ratio = 1 - COGS Ratio = 1 - 0.675 = 32.5%
Target sales to achieve target income = Gross profit / Gross profit ratio = $321,800 / 32.5% = $990,154
Solution 21:
Market value of current assets = Current liabilities + net cash receipt to company after liquidating current accoutns
= $328,575 + $218,400 = $546,975
Book value of current assets = Current liabilties + Net working capital = $328,575 + $143,860 = $472,435
Total book value of assets = $736,000 + $472,435 = $1,208,435
Total market value of assets = $924,000 + $546,975 = $1,470,975
Amount by which market value is higher than book value = $1,470,975 - $1,208,435 = $262,540
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