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Solutions+Problem+Set+1

Solutions+Problem+Set+1 - E120 Principles of Engineering...

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E120 Principles of Engineering Economics Fall 2010 Problem Set #1 Solutions 1. To find shareholders’ equity, we must construct a balance sheet as follows: Balance Sheet CA $5,100 CL $4,300 NFA 23,800 LTD 7,400 SE ?? TA $28,900 TL & SE $28,900 We know that total liabilities and shareholders’ equity (TL & SE) must equal total assets of $28,900. We also know that TL & SE is equal to current liabilities plus long-term debt plus shareholders’ equity, so shareholders’ equity is: SE = $28,900 – 7,400 – 4,300 = $17,200 NWC = CA – CL = $5,100 – 4,300 = $800 2. The income statement for the company is: Income Statement Sales $586,000 Costs 247,000 Depreciation 43,000 EBIT $296,000 Interest 32,000 EBT $264,000 Taxes(35%) 92,400 Net income $171,600 3. To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $380,000 + 1,400,000 = $1,480,000 The market value of current assets and fixed assets is given, so: Book value CA = $1,480,000 Market value CA = $1,600,000 Book value NFA = $3,700,000 Market value NFA = $4,900,000 Book value assets = $5,180,000 Market value assets = $6,500,000 4. To calculate the operating margin and net profit margin, we first need the income statement:
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Income Statement Sales $27,500 Costs 13,280 Depreciation 2,300 Operating income $11,920 EBIT $11,920 Interest 1,105
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