In 2016, the Allen Corporation had sales of $ 68 million, total assets of $ 50 million, and total liabilities of $ 18 million. The interest rate on the company's debt is 5.8 percent, and its tax rate is 35 percent. The operating profit margin is 13 percent. a. Compute the firm's 2016 net operating income and net income. b. Calculate the firm's operating return on assets and return on equity. (Hint: You can assume that interest must be paid on all of the firm's liabilities.) a. Compute the firm's 2016 net operating income and net income. The firm's 2016 net operating income is $ nothing million. (Round to two decimal places.)

Explanation:

Sales - $68,000,000

Total assets - $50,000,000

Total Liabilities - $18,000,000

Interest rate - 5.8%

Tax rate - 35%

Profit margin - 13%

a)

1)Net operating income = Sales * Operating profit margin

68,000,000*13%= $8,840,000

2)Net Income =  Operating income -         8,840,000

Interest expense (5.8%* 18,000,000)       (1,044,000)

Income before tax                                      7,796,000

Income tax (30%)                                        (2,338,000)

                                                                    5,458,000

b)

1)Operating return on assets = net operating income /assets *100

= 8,840,000/50,000,000*100= 17.68%

2)Return on equity.

Net income / Equity * 100

Equity = 50,000,000 - 18,000,000 = 32,000,000

5,458,000/32,000,000*100= 17.06%

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