Problem 1. Use the table for the question(s) below. Consider the following incom
ID: 2770552 • Letter: P
Question
Problem 1.
Use the table for the question(s) below.
Consider the following income statement and otherinformation:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006
2005
Total sales
610.1
578.3
Cost of sales
(500.2)
(481.9)
Gross profit
109.9
96.4
Selling, general, and
Administrative expenses
(40.5)
(39.0)
Research and development
(24.6)
(22.8)
Depreciation and amortization
(3.6)
(3.3)
Operating income
41.2
31.3
Other income
---
---
Earnings before interest and taxes (EBIT)
41.2
31.3
Interest income (expense)
(25.1)
(15.8)
Pretax income
16.1
15.5
Taxes
(5.5)
(5.3)
Net income
10.6
10.2
Price per share
$16
$15
Shares outstanding (millions)
10.2
8.0
Stock options outstanding (millions)
0.3
0.2
Stockholders' Equity
126.6
63.6
Total Liabilities and Stockholders' Equity
533.1
386.7
1.1 For the year ending December 31, 2006Luther's earnings per share are closest to:
A) $1.01
B) $1.04
C) $1.58
D) $4.04
1.2 Luther's Operating Margin for the year ending December 31,2005 is closest to:
A) 1.8%
B) 2.7%
C) 5.4%
D) 16.7%
1.3- Luther's Net Profit Margin for the year ending December 31,2005 is closest to:
A) 1.8%
B) 2.7%
C)5.4%
D) 16.7%
1.4- Luther's earnings before interest, taxes, depreciation, andamortization (EBITDA) for the year ending December 31, 2006 isclosest to:
A) 19.7 million
B) 37.6 million
C) 41.2 million
D) 44.8 million
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
2006
2005
Total sales
610.1
578.3
Cost of sales
(500.2)
(481.9)
Gross profit
109.9
96.4
Selling, general, and
Administrative expenses
(40.5)
(39.0)
Research and development
(24.6)
(22.8)
Depreciation and amortization
(3.6)
(3.3)
Operating income
41.2
31.3
Other income
---
---
Earnings before interest and taxes (EBIT)
41.2
31.3
Interest income (expense)
(25.1)
(15.8)
Pretax income
16.1
15.5
Taxes
(5.5)
(5.3)
Net income
10.6
10.2
Price per share
$16
$15
Shares outstanding (millions)
10.2
8.0
Stock options outstanding (millions)
0.3
0.2
Stockholders' Equity
126.6
63.6
Total Liabilities and Stockholders' Equity
533.1
386.7
Explanation / Answer
1.1 Earning Per Share (EPS) = Net Income / OutstandingShares
Luther’sEPS = $10.6 / $10.2
Luther’sEPS = $1.04
Thus,option is (B) $1.04
1.2 Operating Margin = Operating Income / Sales
Luther’sOperating Margin for the year 2005 = $31.3 / $578.3
OperatingMargin = 5.4%
Thus,option (C) 5.4%
1.3 Net Profit Margin = Net Profit After Tax / Sales
Luther’s Net Profit Margin for the year 2005 = $10.2 /$578.3
Luther’sNet Profit Margin = 1.8%
Thus,option (A) 1.8%
Thus,Option (D) $44.8 million
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