Section 2: Calculations. 54 pts total. Show your work! Do not round your intermediate calculations.

1. 5pt - Use the provided financial statements in the appendix, and the industry total asset turnover ratio (TATO) average is 2 (200%). Using 2014 balance sheet & income statement, the firm's new CFO believes the firm should change its total assets to bring the TATO to the industry average without affecting sales. How much must the total assets be changed to bring the TATO to the industry average, holding sales constant?

2. 5pt - Using the provided income brackets and marginal tax rates. To the nearest dollar, what is the federal tax liability for a married couple filing joint with income of $160,000 is? (answer to nearest cents)

2019 Marginal Rate

For Single Taxable Income

For Married Individuals Filing Joint Returns Taxable Income

10%

Up to $9,875

Up to $19,750

12%

$9,876 to $40,125

$19,751 to $80,250

22%

$40,126 to $85,525

$80,251 to $171,050

24%

$85,526 to $163,300

$171,051 to $326,600

3. 5pt - Last year, firm ABC had $135,000 of assets (which equals total invested capital), $300,000 of sales, $25,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new initiative will enable the company to reduce costs and thus raise net income to $30,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the return on total equity (ROE)?