DeVry Chicago ACCT 346 WORKING PROBLEM Week 7

CLASS: problem #1: (For help, see pg 446-447)A) Assume WAX Inc has net income $7,000,000, interest expense of $1,500,000 and a tax rate of 40%. Calculate the NOPAT.b)If this (same) company had sales of $10,000,000 what is the company’s profit margin?C) What do these amounts tell us?What would you have learned about this company if it were real? Is their interest expense high or low?ALSO: Why do we add back the interest for NOPAT? What is the effect of interest?Class: Problem #2Sam Co. specializes in selling shavers.In the most recent year, the company had net operating income of$6,000,000 on sales of $90,000,000. The company’s average operating assets for the year were $30,000,000 and its minimum rate of return is 18%.Ignore the impact of income taxes in your calculation.Compute the company’s residual income for the year.(A little help on Problem #2:Residual Income is the income we have in excess of our minimum desired. Just calculate the desired income –in this case it is at 18%– and any amount over that is “residual”.)Problem #3:Current Assets:…………………year 1……..year 2Cash and marketable securities 160,000 ..150,000Accounts receivable, net …….175,000… 170,000Inventory ……………………..140,000 …150,000Total current assets …………475,000 ……470,000Current Liabilities:Accounts payable …………….150,000 ….140,000Accrued liabilities …………….50,000 …….60,000Notes payable, short term ……140,000 …..140,000Total current liabilities ………..340,000 ……340,000Sales ……………………..$5,500,000Cost of goods sold ………$2,750,000Required: Calculate the Inventory Turnover ratio.What does this ratio tell management?What does this ratio tell management? Is this good or bad? WHY?Class: problem #1The Lance Company, provides various services.Financial information concerning the most recentyear appears below:Sales $12,000,000Net operating income $3,300,000Average operating assets $30,000,000Ignore the impact of income taxes in your calculation.Compute the return on investment (ROI) for the companyClass: Problem #2 (similar to #1)The Young Co., provides various services.Financial information concerning the most recentyear (not a successful year) appears below:Sales $80,000,000Net operating income $500,000Average operating assets $100,000,000Ignore the impact of income taxes in your calculation.a) Compute the return on investment (ROI) for the company.b) Discuss what you think about their yearQuestion b): Discuss what you think about their year– Class: Discuss.CLASS: 3rd ProblemUsing the Statements on Page 541 and 542 for Great Oaks Furniture, Let’s discuss the following ratios for 2012:a) Return on Assetsb) Quick ratioc) Current ratiod) Debt to equity ratio