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# Bobs construction has 100000 shares outstanding ebit

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64. Bob’s construction has 100,000 shares outstanding. EBIT is \$1 million and interest paid is \$200,000. If the corporate tax rate is 34%, what is Bob's earnings per share (EPS)? [HINT. EPS = (EBIT – INT)(1 – T) / outstanding shares where INT is the interest paid.] a. \$2.72 b. \$3.40 c. \$5.28 d. \$6.60 [ ANSWER: Earnings per share (EPS) equals earnings after taxes (EAT or net income) divided by the number of outstanding shares. EAT equals earnings before taxes (EBT or taxable income) times (1 minus the tax rate) where EBT equals EBIT minus interest (INT). Thus, given EBIT, INT, and the tax rate (T), we have: EPS = (EBIT – INT)(1 – T) / (outstanding shares). Inserting the given values, we have: EPS = (\$1M – \$0.2M)(1 – 0.34) / 0.1M shares = \$5.28 per share .] c 65. Red Hot Chili’s had net sales of \$800,000 over the past year. During that time, average receivables were \$200,000. What was the days’ sales outstanding or average collection period (ACP)? [HINT. ACP = (365 days)(average receivables) / (net sales).] [ Thus, ACP = (365 days) / (receivables turnover) where receivables turnover equals (annual credit sales)/ (accounts receivable) where accounts receivable is represented by the average receivables. Thus, inserting the latter definition and noting that the division by a fraction is the same as multiplying by the inverse, we have: ACP = (365 days)(accounts receivable) / (annual credit sales).

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Inserting the given values, we have: ACP = (365 days)(\$200,000) / \$800,000 = 91.25. To the nearest day, we have: 91 days .] a 66. A firm has a return on assets (ROA) of 8%, sales of \$100, and total assets of \$75. What is its net profit margin (NPM)? [HINT. NPM = (net income before extraordinary items) / sales. Because net income before extraordinary items (NI) can be expressed as (ROA)(total assets), then NPM = (ROA)(total assets) / sales.] [ where NI is the accounting earnings available to shareholders after interest and taxes have been paid (NI is not necessarily equal to available cash flow). Return on assets (ROA) is NI divided by total assets. Net profit margin (NPM) = NI / sales. From the information given in the problem, we can note that need to solve NI. The value for NI can be found from the fact ROA = 0.08 = NI / (total assets). Rearranging the latter equation, we have NI = (ROA)(total assets) = 0.08(\$75) = \$6. Thus, NPM = \$6 / \$100 = 0.06 or 6.0% . OR: Simplifying, we have: NPM = NI / sales = (ROA)(total assets) / sales = 0.08(\$75) / \$100 = 6.0%. ] d 67. A company has a net income (NI) of \$200, interest expenses (INT) of \$50, and depreciation (DEP) of \$50. The corporate tax rate (T) is 50%. What is the cash coverage ratio (CCR)? [HINT. CCR = (EBIT + DEP) / INT where EBIT equals INT plus NI / (1 – T).] [ side of the equivalent expression by (1 – T) gives: NI / (1 – T) = EBIT – INT. Now, subtracting INT from both sides and rearranging, we have: EBIT = INT + [NI / (1 – T)]. Inserting the given values,
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