2018 2017

total revenue 200 110

interest expense 25 10

cost of goods sold 80 40

selling and G&A expenses 40 30

other operating expenses 7 5

depreciation expense 6 3

income tax rate 30% 30%

other non-operating expenses 8 4

preferred stock dividend payment 2 2

1. Given information above, do the following.

(a) Find gross profit and gross profit margin.

(b) Find operating profit and operating profit margin.

(c) Find net profit and net profit margin.

(d) Compare the expenses and expense ratios (cost of goods sold, operating expenses and non-operating expense)

( e) Determine earnings.

2018 2017

2.probability 0.7 possible earnings A 40 possible earnings B 50

0.3 20 -5

(1) Determine the expected earnings for A and for B.

(2) Which earnings has more risk and which has less risk?

(3) For risk averse investors which of earnings A or B is more valuable?