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:

Interest Expense

The cost incurred by an entity for borrowing funds.

Contingent Liability

A potential obligation that may arise depending on the outcome of a future event, which is not yet certain to occur.

Advance Payments

Payments made by a buyer earlier than the agreed upon payment schedule, often to secure an order or as a deposit.

Withholding Allowances

Exemptions that reduce the amount of income tax withheld from an employee's paycheck, based on the employee's personal and financial situation.