Rome Deposit, Inc. has the following balance sheet and income statement. a. What
ID: 2817724 • Letter: R
Question
Rome Deposit, Inc. has the following balance sheet and income statement.
a. What is the company’s after-tax operating income? (Enter your answer in millions and round to one decimal places.)
b. What is the company’s total capitalization? (Enter your answer in millions and round to the nearest dollar.)
c. What is the company’s return on capital? (Enter your answer as a percent rounded to 2 decimal places.)
Income Statement ($ millions) Balance Sheet ($ millions) Net sales $ 5,800.00 Assets Expenses 2,700.00 Current assets $ 6,000.00 Depreciation 1,150.00 Net fixed assets 8,700.00 Taxable income $ 1,950.00 Total assets $ 14,700.00 Interest expense 970.00 Taxable income $ 980.00 Liabilities & Owner's Equity Taxes (35%) 343.00 Current liabilities $ 1,200.00 Net income $ 637.00 Long-term debt 5,400.00 Owner's equity 8,100.00 Total liabilities and equity $ 14,700.00Explanation / Answer
a) After tax operating Income = EBIT * (1 - Tax Rate)
EBIT = 1950, Tax Rate = 35% (from table above)
After tax operating income = 1950 * (1 - 35%) = $1,267.50
b) Company's toital capitalization = Total shareholders' equity + Long term debt
Total capitalization = 8,100 + 5,400 = $13,500
c) Company's return on Capital = After tax operating profit/Total capital = 1267.5/13500 = 9.39%
(Remember, different text use different approaches to Return on capital. SOme text also use EBIT/Total capital as formula, in which cacse the answer would be 14.44%)
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