# DeVry Chicago ACCT 346 Week 7 Problems Solution

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?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?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 yearCLASS: 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

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