SCENARIO 4-1 The balance sheet and income statement shown below are for Byrd Inc
ID: 2737239 • Letter: S
Question
SCENARIO 4-1The balance sheet and income statement shown below are for Byrd Inc, and the data are to be used for the following questions. Note that the firm has no amortization charges, it does not lease any assets, and none of its debt must be retired during the next 5 years (notes payable will be rolled over).
$ 140.0
$ 800.0
880.0
600.0
1,320.0
400.0
$2,340.0
$1,800.0
1,000.0
$2,800.0
200.0
1,000.0
1,660.0
$1,200.0
$4,000.0
$4,000.0
$6,000.0
5,599.8
100.2
$ 300.0
96.0
$ 204.0
81.6
$ 122.4
60.00
$42.8
6.0%
40%
$30.60
What is the firm's BEP?
7.50%
7.75%
8.00%
8.25%
8.50%
BALANCE SHEET Cash$ 140.0
Accounts payable$ 800.0
Accts. receivable880.0
Notes payable600.0
Inventories1,320.0
Accruals400.0
Total current assets$2,340.0
Total current liabilities$1,800.0
Long-term bonds1,000.0
Total debt$2,800.0
Common stock (50,000 shares)200.0
Retained earnings1,000.0
Net plant & equip.1,660.0
Total common equity$1,200.0
Total assets$4,000.0
Total liabilities & equity$4,000.0
INCOME STATEMENT Net sales$6,000.0
Operating costs5,599.8
Depreciation100.2
EBIT$ 300.0
Less: Interest96.0
EBT$ 204.0
Less: Taxes81.6
Net income$ 122.4
Explanation / Answer
Basic Earning Power (BEP) = EBIT / Total Assets
= $300/$4,000 = 0.075 or 7.50%
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