The Following Income Statements for the Year Ending December 31 $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { For the Year Ending December } 31$

question 45

Multiple Choice

The following income statements for the year ending December 31 and other information are available for the Langston Division of Act Company: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { For the Year Ending December } 31$
$\begin{array}{lrr}&2014&2013\\\text { Sales } & \$ 250,000,000 & \$ 220,000,000 \\\text { Cost of goods sold } & \underline{105,000,000} & \\\text { Gross margin } & 145,000,000 & 124,000,0000 \\\text { Selling and administrative costs } & 25,000,000 & 22,500,000 \\\text { Research and development } & 15,600,000 & 12,400,000\\\text { Income from operations } & 104,400,000 & 89,100,000 \\\text { Less taxes on income } & \$ 31,320,000 & 26,730,000 \\\text { Net income } & \$ 73,080,000 & \$ 62,370,000\\\\\text { Total assets } & \$ 650,000,000 & \$ 605,000,000 \\\text { Noninterest-bearing current liabilities } & \$ 15,000,000 & \$ 12,300,000 \\\text { Required rate of return } & 12 \% & 12 \% \\\text { Cost of capital } & 10 \% & 10 \%\end{array}$ Interest expense is $0 and the tax rate is 30 percent. Langston Division amortizes intangible costs over 4 years. By how much is NOPAT adjusted as it relates to computing EVA for 2014?

• A) $8,190,000
• B) $11,700,000
• C) $8,600,000
• D) $6,020,000

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Definitions:

Capital Goods

Long-term assets used by businesses to produce goods and services, such as machinery and buildings.

Consumer Goods

Items produced for direct consumption by the end consumer.

Production Possibilities Curve

An illustrative chart that depicts the optimal mix of two goods or services that can be produced by an economy when it fully and efficiently employs all available resources.

Society's Production

The total output of goods and services produced by all sectors within a society or economy.