Ba 350 Week 8 Final Exam

BA 350 WEEK 8 FINAL EXAM

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BA 350 Week 8 Final Exam,

2-4

Pearson Brothers recently reported an EBITDA of $7.5 Million and net income of $1.8 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

EBITDA = $7,500,000

Interest = 2,000,000

Tax = 0.04

Net income = 1,800,000

EBT = 1,800,000/(1-0.04) = 3,000,000

2-7 – (Corporate Tax Liability)

The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charge of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the company’s marginal and average tax rates on taxable income?

Taxable income=$365,000

Interest charges= $50,000

Dividends received = $15,000 x (1-0.70) = $4,500

3-8 – (Profit Margin and Debt Ratio) –

Assume you are given the following relationships for the Clayton Corporation: Sales/total assets 1.5

Return on assets (ROA) 3%

Return on equity (ROE) 5% C

Calculate Clayton’s profit margin and debt ratio.

Solution:

Return on assets = Profit margin x sales/total assets

0.03 = profit margin x 1.5

0.03 / 1.5 = .02 = 2%

12.1 – (AFN Equation)

Baxter Video Product’s sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were$1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year.

Solution:

A0 =...