Problem set Essay

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1. EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

Sales

$1,800.00

Costs

1,400.00

Depreciation

250.00

EBIT

$ 150.00

Interest expense

70.00

EBT

$ 80.00

Taxes (40%)

32.00

Net income

$ 48.00

a.
$81.23

b.
$85.50

c.
$90.00

EBIT $150.00

d.
$94.50

Tax Rate 40%

e.
$99.23

NOPAT=$90.0

2. Tibbs Inc. had the following data for the year ending 12/31/07: Net income = $300; Net operating profit after taxes (NOPAT) = $400; Total
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The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE?

a.
9.32%

b.
9.82%

c.
10.33%

d.
10.88%

e.
11.42%

9.
Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 215,000 shares outstanding, and its debt ratio was 46%. How much debt was outstanding?

a.
$3,393,738

b.
$3,572,356

c.
$3,760,375

d.
$3,958,289

e.
$4,166,620

10.
Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 42.5%. Based on the Du Pont equation, what was Vaughn's ROE?

a.
14.77%

b.
15.51%

c.
16.28%

d.
17.10%

e.
17.95%

11.
Last year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs. Had it reduced its assets in this amount, and had the debt ratio, sales, and costs remained

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