The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) 2021 Assets Cash and securities $ 6,300 Accounts receivable 17,500 Inventories 18,200 Total current assets $ 42,000 Net plant and equipment 28,000 Total assets $ 70,000 Liabilities and Equity Accounts payable $ 24,053 Accruals 11,847 Notes payable 8,000 Total current liabilities $ 43,900 Long-term bonds 10,000 Total liabilities $ 53,900 Common stock 4,508 Retained earnings 11,592 Total common equity $ 16,100 Total liabilities and equity $ 70,000 Income Statement (Millions of $) 2021 Net sales $ 112,000 Operating costs except depreciation 104,160 Depreciation 2,240 Earnings before interest and taxes (EBIT) $ 5,600 Less interest 1,080 Earnings before taxes (EBT) $ 4,520 Taxes (25%) 1,130 Net income $ 3,390 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of $) $1,186.50 Int. rate on notes payable & L-T bonds 6% Federal plus state income tax rate 25% Year-end stock price $81.36 What is the firm's BEP? Do not round your intermediate calculations. a. 13.33% b. 5.00% c. 4.84% d. 8.00% e. 6.46%

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 7QE

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Question

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)	2021
Assets
Cash and securities		$	6,300
Accounts receivable			17,500
Inventories			18,200
Total current assets		$	42,000
Net plant and equipment			28,000
Total assets		$	70,000

Liabilities and Equity
Accounts payable		$	24,053
Accruals			11,847
Notes payable			8,000
Total current liabilities		$	43,900
Long-term bonds			10,000
Total liabilities		$	53,900
Common stock			4,508
Retained earnings			11,592
Total common equity		$	16,100
Total liabilities and equity		$	70,000

Income Statement (Millions of $)	2021
Net sales		$	112,000
Operating costs except depreciation			104,160
Depreciation			2,240
Earnings before interest and taxes (EBIT)		$	5,600
Less interest			1,080
Earnings before taxes (EBT)		$	4,520
Taxes (25%)			1,130
Net income		$	3,390

Other data:
Shares outstanding (millions)			500.00
Common dividends (millions of $)		$1,186.50
Int. rate on notes payable & L-T bonds			6%
Federal plus state income tax rate			25%
Year-end stock price			$81.36

What is the firm's BEP? Do not round your intermediate calculations.

a. 13.33%

b. 5.00%

c. 4.84%

d. 8.00%

e. 6.46%

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