(Profitability and capital structure analysis)In the year just ended, Callaway Lighting had sales of

$5,470,000

and incurred cost of goods sold equal to

$4,550,000.

The firm's operating expenses were

$135,000

and its increase in retained earnings was

$43,000

for the year. There are currently

103,000

common stock shares outstanding and the firm pays a

$3.971

dividend per share. The firm has

$1,080,000

in interest-bearing debt on which it pays

8.3

percent interest.a.Assuming the firm's earnings are taxed at

35

percent, construct the firm's income statement.

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 Callaway's ability to pay its interest expense?

a. Assuming the firm's earnings are taxed at 35%, construct the firm's income statement Complete the income statement below: (Round to the nearest dollar.) CA 5470000 4550000 920000 135000 Income Statement Revenues Cost of Goods Sold Gross Profit Operating Expenses Net Operating Income Interest Expense Earnings before Taxes Income Taxes Net Income HA 785000 89640 695360 243376 CA 451984 b. Calculate the firm's operating profit margin and net profit margin. The operating profit margin is 12.7%. (Round to one decimal place.) The net income margin is 14.4%. (Round to one decimal place.) c. Compute the times interest earned ratio. The times interest earned ratio is 7.8 times. (Round to one decimal place.) What does this ratio tell you about Callaway's ability to pay its interest expense? (Select the best choice below.) O A. Callaway's interest expense is 8.8 times higher than its competitors. B. Callaway's operating income can fall as much as 8.8 times and still be able to repay its debt. Enter any number in the edit fields and then continue to the next question. OC. Callaway's gross profit can fall as much as 8.8 times and still be able to service its debt. OD. Callaway's operating income can fall as much as 8.8 times the interest expense and the company would still be able to service its debt. d. What is the firm's return on equity? (Select the best choice below.) A. The firm's return on equity is the same as the operating profit margin, 14.4%. O B. The firm's return on equity is the sum of the operating profit margin and the net profit margin, 22.7%. OC. The firm's return on equity is the same as the net profit margin, 8.3%. OD. There is not enough information to answer this