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 89

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 invested capital adjusted as it relates to computing EVA for 2014?

• A) $17,900,000
• B) $11,700,000
• C) $6,020,000
• D) $8,600,000

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Definitions:

Principal

In finance, this term refers to the original sum of money invested or loaned, not including any interest or dividends. In law, it can also mean the main party to a transaction.

Agent

An individual or entity authorized to act on behalf of another person or entity, known as the principal, in transactions, negotiations, or other legal matters.

Joint And Several Liability

A legal term indicating that each party involved is individually responsible for the entire debt or obligation, as well as collectively with the other parties.

Agent's Torts

Refers to wrongs committed by an agent acting on behalf of a principal that can lead to liability for the agent and potentially the principal.