Question

Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 25%. How much was its net operating profit after taxes (NOPAT )?

Answer 1

Answer:

NOPAT is $3,375

Explanation:

The formula to compute the NOPAT is as follows:

NOPAT = EBIT × (1- Tax rate)

where

EBIT is Earnings Before interest and tax and it is computed as:

EBIT = Total Revenue - COGS (Cost of Goods Sold) - Operating expense

= $11,250 - $0 - ($5,500 + $1,250)

= $4,500

Tax rate is 25%

putting the values above:

NOPAT = $4,500 × ( 1 - 25%)

= $4,500 × (1 - 0.25)

=$4,500 × 0.75

= $3,375