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(Profitability and capital structure analysis) In the year that just ended, Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year. There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest. a. (5 points) Assuming the firm's earnings are taxed at 35%, construct the firm's income statement. Income Statement Revenues $ Cost of Goods Sold Gross Profit $ Operating Expenses Net Operating Income $ Interest Expense Earnings before Taxes $ Income Taxes Net Income $ b. (5 points) Calculate the firm's operating profit margin and net profit margin. (Round to one decimal place.) The operating profit margin is % The net income margin is % c. (5 points) Compute the times interest earned ratio. The times interest earned ratio is % What does this tell you about Callaway's ability to pay its interest expense? (Fill in the blank with the times interest earned ratio from above and select the best choice.) 1) Callaway's operating income can fall as much as ______ times the interest expense and the company would still be able to service its debt. 2) Callaway's interest expense is _______ times higher than its competitors. 3) Callaway's gross profit can fall as much as ______ times and still be able to service its debt. 4) Callaway's operating income can fall as much as ______ times and still be able to repay its debt. What is the fin's return on equity? (Select the best choice.) 1) The firm's return on equity is the same as the net profit margin, 9.4%. 2) The firm's return on equity is the sum of the operating profit margin and the net profit margin, 25.5%. 3) There is not enough information to answer this question. 4) The firm's return on equity is the same as the operating profit margin, 16.1%.
A firm has operating profits of $15,000 on unit sales of 10,000 units. Fixed costs are $30,000; each unit sells for $11.50 and has variable cost of $7.00. What is the firm's break-even sales level?
Assume the stockholders of EX stock are in the 28 percent tax bracket. The closing price of the stock today was $67.18 a share. The firm pays a quarterly dividend of $1.65 per share. What is the expected opening price of the stock tomorrow if tomorro..
Assume the annual average return on the S&P500 is 13.7% with a standard deviation of 17.5%. A risk-free asset has an annual average return of 4.0% with a standard deviation of 0.0% and a correlation with the S&P500 index of +0.00. An investor invests..
Bally Manufacturing sent Intel Corporation an invoice for machinery with a $13,700 list price. Bally dated the invoice July 26 with 5/10 EOM terms. Intel receives a 20% trade discount. Intel pays the invoice on August 08. On August 1, Intel Corporati..
You are considering buying a bond issued by General Motors with exactly 5.5 years remaining to maturity that just paid a coupon yesterday. It rained on your paper this morning so you do not know what the coupon rate is. However you are able to see th..
A 6.15 percent coupon bond with fifteen years left to maturity is priced to offer a 7.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollar..
A bond of the Eastold Corporation pays an 11% coupon and has a $1000 par value. The coupon is paid semi-annually (twice a year). The bond matures in 10 years. The market's required yield to maturity on a comparable-risk bond is 9%. Calculate the valu..
A company wishes to issue a 10-year bond. To lower it's cost of debt, the company attaches 25 warrants to each bond. Each warrant has a strike(EG exercise) price of $25 and 5 years until expiration. What coupon rate needs to be set on this bond with ..
Your firm needs a machine which costs $60,000, and requires $15,000 in maintenance for each year of its 5-year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35% a..
Water Wings Sports is considering an investment that costs $300,000 and is expected to generate cash flows of $90,000 per year during its 5-year life. If WWS’s required rate of return is 15%, what is this investment’s net present value? A. $150,000 B..
Given the following firm and market information, determine the value of the firm's shares.
Examine how to establish a cost and schedule performance measurement baseline. Present examples of EVM and how it will help the PM understand project status.
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