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Transcript
Gerry Co. has a gross profit of \$880,000 and \$360,000 in depreciation expense. Selling and
administrative expense is \$120,000. Given that the tax rate is 40 percent, compute the cash
flow for Gerry Co.
Gross profit
Less depreciation
Operating profit
Less taxes (40%)
Profit after taxes
Cash flow after taxes
880,000
360,000
120,000
400,000
-160000
240,000
360,000
600,000
A firm has a debt to asset ratio of 75%, \$240,000 in debt, and net income of \$48,000.
Calculate return on equity.
Debt to asset ratio = Debt/ Asset = 75%
Debt = 0.75 Assets
240,000 = 0.75 x Assets
Assets = 240,000 / 0.75
Assets = 320,000
Debt + equity = Assets
240,000 + equity = 320,000
Equity = 320,000 – 240,000
Equity = 80,000
Return on assets = Net income/ equity
= 48,000/ 80,000
= 0.6 or 60%
MG Lighting had sales of 1,000 units at \$100 per unit last year. The marketing manager
projects a 10 percent decrease in unit volume this year because a 20 percent price increase is
needed to pass rising costs through to customers. Returned merchandise will represent 2
percent of total sales. What is your net dollar sales projection for this year?
Sales units projected for this year = 1,000 - 1,000 x 10% = 900 units
New selling price = 100 + 100 x 20% = \$120
Sales =900 x 120 = \$108,000
Sales returns = 108,000 x 2% = 2,160
Net dollars sales = sales - sales returns
= 108,000 - 2,160
= \$105,840
If a firm has a break-even point of 20,000 units and the contribution margin on the firm's
single product is \$3.00 per unit and fixed costs are \$60,000, what will the firm's net income be
at sales of 30,000 units?
Net Income at sales of 30,000 units:
Contribution (30,000 x 3)
Less Fixed cost
Net income
90,000
-60,000
30,000
Alternatively,
Desired sales = (fixed cost + net income)/ contribution margin per unit
30,000 = (60,000 + net income)/ 3
90,000 = 60,000 + net income
Net income = 90,000 – 60,000 = 30,000