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# Chapter_12web - EXERCISES FOR CHAPTER 12 With Solutions Pepsico Pepsico Inc reported the following income statement for 1999(in millions of dollars

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Unformatted text preview: EXERCISES FOR CHAPTER 12 With Solutions Pepsico Pepsico Inc. reported the following income statement for 1999 (in millions of dollars): Net Sales 20,367 Operating expenses (17,484) Restructuring charge (65) Operating profit 2,818 Gain on asset sales 1,083 Interest expense (363) Interest income 118 3,656 Provision for income taxes 1,606 Net income 2,050 (a) Calculate core operating income after tax. The firm’s marginal tax rate is 37%. (b) Calculate the effective tax rate on core operating income. Pepsico: Solution a) Reformulate the income statement to identify core operating income: Net sales 20,367 Core operating expenses 17,484 Core operating expenses before tax 2,883 Tax reported 1,606 Tax benefit of debt (0.37 x 245) 91 Tax on unusual items (0.37 x 1,018) (377) 1,320 Core operating income after tax 1,563 (Unusual items = 1,083 – 65 = 1,018) b) Effective tax rate on core OI = % 8 . 45 883 , 2 320 , 1 = Is this unusual? Adjust core operating income for a 37% tax rate?------------------------------------------------------------------------------------------------------------ Explaining Changes in Profitability The following condensed balance sheets were prepared for a firm (in millions of dollars)....
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## This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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Chapter_12web - EXERCISES FOR CHAPTER 12 With Solutions Pepsico Pepsico Inc reported the following income statement for 1999(in millions of dollars

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