profit margin. +12. (Analyzing profitability and capital structure) In the year just ended, Callaway Light- firm's operating expenses were $130,000, and its increase in retained earnings was $40,000 for the year. There are currently 100,000 common-stock shares outstanding, and the firm pays a $1.485 dividend per share. The firm has $1,000,000 in interest- bearing debt, on which it pays 8 percent interest. a. Assuming the firm's earnings are taxed at 35 percent, construct the firm's income b. Calculate the firm's operating profit margin and net profit margin. c. Compute the times interest earned ratio, What does this ratio tell you about Cal- laway's ability to pay its interest expense? d. What is the firm's return on equity? 413 ral