Kwok Enterprises has the following income statement. How much Net operating prof

Question

Kwok Enterprises has the following income statement. How much Net operating profit after tax (NOPAT) does the firm have?

Question 7 options:

$120

$134

$92

$138

$127

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Question 8 (10 points)

Rao Construction recently reported $20.00 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions?

Question 8 options:

$4.27

$3.83

$3.56

$4.40

$3.87

Sales $1,850 Costs 1,400 Depreciation 250 EBIT $200 Interest expense 70 EBT $130 Taxes (40%) 52 Net income $78

Explanation / Answer

(7) EBIT = $ 200 and Tax Rate = 40 %

NOPAT = 200 x (1-0.4) = $ 120

Hence, the correct option is (A).

(8) Revenue = $ 20 m

LESS: Operating Costs = $ 12.6 m

LESS: Depreciation = $ 3 m

EBIT = $ 4.4 million

Hence, the correct option is (D).

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