Down Coats, Inc. originally forecasted the following financial data for next year: Sales = $800,000, Cost of...

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Down Coats, Inc.originally forecasted the following financial data for next year:Sales = $800,000, Cost of goods sold = $500,000, operating expenseand depreciation = $87,500 and Interest expense = $24,000. The firmbelieves that COGS will always be 62.5% of sales. Suppose the firmwants to achieve a net income of $160,000. Assuming the operatingcosts, depreciation and interest expense will remain the same, howlarge must sales be to achieve this goal? Assume a 32% taxrate.
A. more than$930,000
B. more than $905,000but less than $930,000
C. more than $880,000but less than $905,000
D. more than $855,000but less than $880,000
E. less than$855,000

Winnie Peg, Inc. balance sheet lists net fixed assets as $20million. The fixed assets could currently be sold for $25 million.Winnie Peg's current balance sheet shows current liabilities of $7million and net working capital of $3 million. If all the currentaccounts were liquidated today, the company would receive $9million cash after paying $7 million in liabilities. What is thebook value of Winnie Peg’s assets today? What is the market valueof these assets?
A. $10 million, $16million
B. $10 million, $35 million
C. $30 million, $35million
D. $30 million, $41 million
E. more than $30 million, more than $41 million
You are considering astock investment in one of two firms (AllDebt, Inc. and AllEquity,Inc.), both of which operate in the same industry and haveidentical operating income of $3 million. AllDebt, Inc. financesits $6 million in assets with $5 million in debt (on which it pays5 percent interest annually) and $1 million in equity. AllEquity,Inc. finances its $6 million in assets with no debt and $6 millionin equity. Both firms pay a tax rate of 40 percent on their taxableincome. What are the asset funders' (the debt holders andstockholders') resulting return on assets for the two firms? (Hint:Interest is a return to the asset funders)
A. 27.5%, and 30.0%,respectively
B. 30.0%, and 27.5%,respectively
C. 31.7%, and 30.0%,respectively
D. 33.3%, and 30.0%,respectively
E. 50.0%, and 50.0%,respectively
Sage Shoes, Inc. had2015 taxable income of $4,450,000 from operations after alloperating costs but before interest charges of $750,000, dividendsreceived of $900,000, dividends paid of $500,000, and income taxes.Using the tax schedule in Table 2.3, what is Sage Shoes' income taxliability? What is Sage's average tax rate on taxable income fromoperations?
A. $1,349,800, 30.3%,respectively
B. $1,349,800, 34.0%,respectively
C. $1,513,000, 34.0%,respectively
D. $1,564,000, 34.0%,respectively
E. $1,564,000, 35.2%,respectively

Answer & Explanation Solved by verified expert

4.4 Ratings (567 Votes)

1 Down Coats Desired net income 160000 Income before taxes 160000132 235294 Add Operating expense depreciation Interest 111500 EBITDA 346794 Required See Answer

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Down Coats, Inc.originally forecasted the following financial data for next year:Sales = $800,000, Cost of goods sold = $500,000, operating expenseand depreciation = $87,500 and Interest expense = $24,000. The firmbelieves that COGS will always be 62.5% of sales. Suppose the firmwants to achieve a net income of $160,000. Assuming the operatingcosts, depreciation and interest expense will remain the same, howlarge must sales be to achieve this goal? Assume a 32% taxrate.A. more than$930,000B. more than $905,000but less than $930,000C. more than $880,000but less than $905,000D. more than $855,000but less than $880,000E. less than$855,000Winnie Peg, Inc. balance sheet lists net fixed assets as $20million. The fixed assets could currently be sold for $25 million.Winnie Peg's current balance sheet shows current liabilities of $7million and net working capital of $3 million. If all the currentaccounts were liquidated today, the company would receive $9million cash after paying $7 million in liabilities. What is thebook value of Winnie Peg’s assets today? What is the market valueof these assets?A. $10 million, $16millionB. $10 million, $35 millionC. $30 million, $35millionD. $30 million, $41 millionE. more than $30 million, more than $41 millionYou are considering astock investment in one of two firms (AllDebt, Inc. and AllEquity,Inc.), both of which operate in the same industry and haveidentical operating income of $3 million. AllDebt, Inc. financesits $6 million in assets with $5 million in debt (on which it pays5 percent interest annually) and $1 million in equity. AllEquity,Inc. finances its $6 million in assets with no debt and $6 millionin equity. Both firms pay a tax rate of 40 percent on their taxableincome. What are the asset funders' (the debt holders andstockholders') resulting return on assets for the two firms? (Hint:Interest is a return to the asset funders)A. 27.5%, and 30.0%,respectivelyB. 30.0%, and 27.5%,respectivelyC. 31.7%, and 30.0%,respectivelyD. 33.3%, and 30.0%,respectivelyE. 50.0%, and 50.0%,respectivelySage Shoes, Inc. had2015 taxable income of $4,450,000 from operations after alloperating costs but before interest charges of $750,000, dividendsreceived of $900,000, dividends paid of $500,000, and income taxes.Using the tax schedule in Table 2.3, what is Sage Shoes' income taxliability? What is Sage's average tax rate on taxable income fromoperations?A. $1,349,800, 30.3%,respectivelyB. $1,349,800, 34.0%,respectivelyC. $1,513,000, 34.0%,respectivelyD. $1,564,000, 34.0%,respectivelyE. $1,564,000, 35.2%,respectively