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

question 26

Multiple Choice

The following income statements for the year ending December 31 and other information are available for the Langston Division of Act Company: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { For the Year Ending Decem ber } 31$
$\begin{array}{lrr}&2018&2017\\\text { Sales } & \$ 250,000,000 & \$ 220,000,000 \\\text { Cost of goods sold } & 105,000,000 &{96,000,000} \\\text { Gross margin } & 145,000,000 & {124,000,000}\\\text { Selling and administrative costs } & 25,000,000 & 22,500,000 \\\text { Research and development } & 15,600,000 & 12,400,000\\\text { Income from operations } & 104,400,000 & 89,100,000 \\\text { Less taxes on income } & 31,320,000 & 26,730,000 \\\text { Net income }&\$73,080,000&\$62,370,000\\\\\text { Total assets } & \$ 650,000,000 & \$ 605,000,000 \\\text { Noninterest-be aring current liabilities } & \$ 15,000,000 & \$ 12,300,000 \\\text { Required rate of return } & 12 \% & 12 \% \\\text { Cost of capital } & 10 \% & 10 \%\end{array}$ 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 2018?

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

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Definitions:

Injunction

A legal order issued by a court that directs an individual or entity to do or not do a specific action.

Earned Surplus Test

A financial measure used to determine the amount of income that a company has earned and is available for dividends distribution after accounting for all necessary expenses.

Surplus Test

A financial measure used to determine if an entity has excess assets over liabilities, often in insurance contexts.

Net Asset Test

A financial metric used to evaluate a company's financial health by subtracting total liabilities from total assets.