Question 5 (10 points) For 2015, Bargain Basement Stores reported $11,500 of sal
ID: 2818495 • Letter: Q
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Question 5 (10 points)
For 2015, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation). The company has $20,500 of total invested capital, the cost of that capital was 13%, and the federal-plus-state income tax rate was 40%. What was the firm's Economic Value Added (EVA), i.e., how much value did management add to stockholders' wealth during 2014?
Question 5 options:
$1,420
$1,482
$926
$1,235
$1,112
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Question 6 (10 points)
Emery Mining Inc. recently reported $110,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $16,500 of outstanding bonds that carry a 7.25% interest rate so they pay $1,196.25 as interest charges. Its federal-plus-state income tax rate was 35%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting purposes. (Round your intermediate and final answers to two decimal places.)
Question 6 options:
$11,263.08
$14,867.26
$13,215.35
$15,017.44
$16,819.53
$1,420
$1,482
$926
$1,235
$1,112
Explanation / Answer
Question 5 Calculation of EVA Particulars Amount in $ Sales 11,500 Less: Operating Costs (including depreciation) 5,000 Earning before Interest and Tax (EBIT) 6,500 Less: Tax @ 40% 2,600 NOPAT 3,900 Invested Capital * Cost of Capital (20500*13%) 2,665 Economic Value Added (EVA) 1,235 Option D i.e. $1,235 is correct Question 6 Calculation of Firm's Net Income Particulars Amount in $ Sales 110,000.00 Less : Operating Costs 75,500.00 Less: Depreciation 10,200.00 EBIT 24,300.00 Less: Interest 1,196.25 EBT 23,103.75 Less: Tax @35% 8,086.31 EAT / Firm's Net Income 15,017.44 Option D i.e. $15,017.44 is correct
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