(Evaluating profitability) The Malia Corporation had sales in 2015 of $63 millio
ID: 2617157 • Letter: #
Question
(Evaluating profitability) The Malia Corporation had sales in 2015 of $63 million, total assets of S47 million, and total liabilities of $25 milion. The interest rate on the company's debt is 6.1 percent and its tax rate is 30 percent. The operating profit margin was 11.6 percent. What were the company's operating income and net income? What was the operating return on assets and return on equity? Assume that interest must be paid on all of the debt. Review Only Click the icon to see the Worked Solution (Formula Solution) The operating income was S 7,308,000. (Round to the nearest dollar.) The net income was $ 4,048,100. (Round to the nearest dollar.) The operating return on assets was 15.5%. (Round to one decimal place.) The return on equity was 18.4 %. (Round to one decimal place.)Explanation / Answer
Answer to Question 1:
Operating Income = Sales * Operating Profit Margin
Operating Income = $63,000,000 * 11.6%
Operating Income = $7,308,000
Interest Expense = Interest Rate * Value of Debt
Interest Expense = 6.10% * $25,000,000
Interest Expense = $1,525,000
Net Income = (Operating Income - Interest) * (1 - tax)
Net Income = ($7,308,000 - $1,525,000) * (1 - 0.30)
Net Income = $4,048,100
Operating Return on Assets = Operating Income / Total Assets
Operating Return on Assets = $7,308,000 / $47,000,000
Operating Return on Assets = 15.5%
Value of Equity = Total Assets - Value of Liabilities
Value of Equity = $47,000,000 - $25,000,000
Value of Equity = $22,000,000
Return on Equity = Net Income / Value of Equity
Return on Equity = $4,048,100 / $22,000,000
Return on Equity = 18.4%
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