The following information pertains to Baya Inc. for the year ended December 31 Assets Current assets...

 

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The following information pertains to Baya Inc. for the year ended December 31 Assets Current assets Cash Receivables Inventories Net property, plant and equipment Goodwill Total assets Liabilities Current liabilities Payables Long-term debt Total liabilities BAYA INC. Consolidated Balance Sheet December 31 Shareholders' equity Common shares Retained earnings Total liabilities and shareholders' equity Operating income before interest and taxes Impairment loss of goodwill included in the calculation GAAP income Development cost capitalized under GAAP Development cost expensed under GAAP Research costs expensed under GAAP Total depreciation of all equipment $ 210,000 195,000 380,000 785,000 1,100,000 450,000 $ 2,335,000 $ 580,000 800,000 1,380,000 705,000 250,000 $ 2,335,000 $ 160,000 2,800 6,000 8,200 12,600 25,000 Additional information: 1. The marginal tax rate is 40%. 2. The cost of equity is 9%. 3. The market yield on equivalent debt is 4%. 4. Assume that all research and development costs were incurred on January 1. 5. Assume that the fair values of debt and equity are close to their accounting values. 6. Amortized is over a period of 6 years. 7. Selling price per unit $30 8. Variable cost per unit $18 9. Annual fixed costs $375,200 10. Note: The capital employed is equal to investment. Required 1) Determine the economic value added (EVA) for the year ended December 31. (7 Marks) 2) Calculate the operating income required for Baya Inc. if the company would want to achieve 16% return on investment (ROI). (1 Marks) 3) Calculate how many units Baya Inc. must sell to achieve 16% return on investment (ROI). (2 Marks) 4) If Baya Inc. wants an ROI of 20% and expects to sell 45,000 units. Calculate the new selling price of the product. (2 Marks) 5) If Baya Inc. has a residual income of $42,500 and cost of capital is 15% calculate the corresponding Operating Income and return on investment (ROI). (3 Marks) The following information pertains to Baya Inc. for the year ended December 31 Assets Current assets Cash Receivables Inventories Net property, plant and equipment Goodwill Total assets Liabilities Current liabilities Payables Long-term debt Total liabilities BAYA INC. Consolidated Balance Sheet December 31 Shareholders' equity Common shares Retained earnings Total liabilities and shareholders' equity Operating income before interest and taxes Impairment loss of goodwill included in the calculation GAAP income Development cost capitalized under GAAP Development cost expensed under GAAP Research costs expensed under GAAP Total depreciation of all equipment $ 210,000 195,000 380,000 785,000 1,100,000 450,000 $ 2,335,000 $ 580,000 800,000 1,380,000 705,000 250,000 $ 2,335,000 $ 160,000 2,800 6,000 8,200 12,600 25,000 Additional information: 1. The marginal tax rate is 40%. 2. The cost of equity is 9%. 3. The market yield on equivalent debt is 4%. 4. Assume that all research and development costs were incurred on January 1. 5. Assume that the fair values of debt and equity are close to their accounting values. 6. Amortized is over a period of 6 years. 7. Selling price per unit $30 8. Variable cost per unit $18 9. Annual fixed costs $375,200 10. Note: The capital employed is equal to investment. Required 1) Determine the economic value added (EVA) for the year ended December 31. (7 Marks) 2) Calculate the operating income required for Baya Inc. if the company would want to achieve 16% return on investment (ROI). (1 Marks) 3) Calculate how many units Baya Inc. must sell to achieve 16% return on investment (ROI). (2 Marks) 4) If Baya Inc. wants an ROI of 20% and expects to sell 45,000 units. Calculate the new selling price of the product. (2 Marks) 5) If Baya Inc. has a residual income of $42,500 and cost of capital is 15% calculate the corresponding Operating Income and return on investment (ROI). (3 Marks)

Answer rating: 100% (QA)

To solve the given questions we need to use the following formulas 1 Economic Value Added EVA Net Operating Profit After Taxes NOPAT Invested Capital Cost of Capital 2 Return on Investment ROI Operati... View the full answer