Question 5. (15 points total) (Profitability and capital structure analysis) In the year that just ended,
Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The
firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year.
There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per
share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.
a. (5 points) Assuming the firm's earnings are taxed at 35%, construct the firm's income statement.
Income Statement
Revenues
$ 5,470,000
Cost of Goods Sold
4,460,000
Gross Profit
$
Operating Expenses
Net Operating Income
$
Interest Expense
Earnings before Taxes
$
Income Taxes
Net Income
$
b. (5 points) Calculate the firm's operating profit margin and net profit margin. (Round to one
decimal place.)
The operating profit margin is
The net income margin is
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Question 5. (15 points total) (Profitability and capital structure analysis) In the year that just ended,
Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The
firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year.
There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per
share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.
a. (5 points) Assuming the firm's earnings are taxed at 35%, construct the firm's income statement.
Income Statement
Revenues
$ 5,470,000
Cost of Goods Sold
4,460,000
Gross Profit
$
Operating Expenses
Net Operating Income
$
Interest Expense
Earnings before Taxes
$
Income Taxes
Net Income
$
b. (5 points) Calculate the firm's operating profit margin and net profit margin. (Round to one
decimal place.)
The operating profit margin is
The net income margin is