Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: 6BP b (page 78)

Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows

Sales\( 2790000
Cost of goods sold1790000
Gross profits\) 1000000
Selling and administrative expenses302000
Operating profits\( 698000
Interest Expense54800
Income before tax\) 643200
Taxes 30%192960
Income after tax$ 450240

b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?

Short Answer

Expert verified

The income after tax of the company is $394,940, and the profit margin is 12.87%.

Step by step solution

01

Income after tax for the year 20X2:

Sales ( $ 2790000x 110% )
$3,069,000
Cost of goods sold($ 1790000x 120%)
2148000
Gross profits
921000
Selling and administrative expenses
302000
Operating profits
619000
Interest Expense
54800
Income before tax
564200
Taxes 30%
169260
Income after tax
$ 394940
02

Return Profit margin for the year 20X2

Profit Margin = Net income after tax / sales

= $ 394940 / $ 3069000

= 12.87%

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Jerry Rice and Grain Stores has \(4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has \)123,000 in current liabilities and $349,000 in long-term liabilities.

a. What is its return on stockholders’ equity?

Amigo Software Inc. has total assets of \(889,000, current liabilities of\)192,000, and long-term liabilities of \(154,000. There is \)87,000 in preferredstock outstanding. Thirty thousand shares of common stock have been issued.

a. Compute book value (net worth) per share.

b. If there is $56,300 in earnings available to common stockholders and the

firm’s stock has a P/E of 23 times earnings per share, what is the currentprice of the stock?

c. What is the ratio of market value per share to book value per share? (Round

to two places to the right of the decimal point.)

The Holtzman Corporation has assets of \(400,000, current liabilities of \)50,000, and long-term liabilities of \(100,000. There is \)40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a. Compute book value (net worth) per share.

b. If there is $22,000 in earnings available to common stockholders and

Holtzman’s stock has a P/E of 18 times earnings per share, what is the current

price of the stock?

c. What is the ratio of market value per share to book value per share?

Classify the following balance sheet items as current or noncurrent:

Retained earning

Bond payable

Accounts payable

Accrued wages payable

Prepaid expenses

Accounts receivable

Plant and equipment

Capital in excess of par

Inventory

Preferred stock

Common stock

Marketable security

Nova Electrics anticipates cash flow from operating activities of \(6 million in 20X1. It will need to spend \)1.2 million on capital investments to remain

competitive within the industry. Common stock dividends are projected at

\(.4 million and preferred stock dividends at \).55 million.

a. What is the firm’s projected free cash flow for the year 20X1?

b. What does the concept of free cash flow represent?
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Managers

Read Explanation

Business Development

Read Explanation

Managerial Economics

Read Explanation

Nature of Business

Read Explanation

Human Resources

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free