For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:
Cost of goods sold............................... $1.2 million
Administrative expenses........................ $250,000
Marketing and selling expenses............... $175,000
Depreciation........................................ $500,000
Interest expense.................................. $200,000
Dividends paid..................................... $150,000
(TCO 1) Assuming a tax rate of 30%, the percentage of dividends per net income is approximately ______ and operating cash flow is _________ than net income.
Hint: You need to calculate the net income and divide dividends by the net income.
(Points : 3)
30% and lower
60% and lower
30% and higher
60% and higher
To calculate the net income, we need to subtract the expenses from the sales.
Sales - Expenses = Net Income
$2.7 million - $1.2 million - $250,000 - $175,000 - $500,000 - $200,000 = $375,000
Next, we need to calculate the dividends per net income.
Dividends / Net Income = Dividends per Net Income
$150,000 / $375,000 ≈ 0.4 or 40%
Since the tax rate is 30%, the percentage of dividends per net income is approximately 40% and higher.
As for the operating cash flow, we don't have enough information to determine if it is higher or lower than the net income.
To find the percentage of dividends per net income, we first need to calculate the net income.
Net income is calculated by subtracting all expenses from the sales revenue. In this case, we have the following expenses:
Cost of goods sold: $1.2 million
Administrative expenses: $250,000
Marketing and selling expenses: $175,000
Depreciation: $500,000
Interest expenses: $200,000
To calculate the net income, we subtract all the expenses from the sales revenue:
Sales revenue: $2.7 million
Expenses: $1.2 million + $250,000 + $175,000 + $500,000 + $200,000 = $2.325 million
Net income = Sales revenue - Expenses
= $2.7 million - $2.325 million
= $375,000
Next, we need to find the percentage of dividends per net income:
Dividends paid: $150,000
Dividends per net income = Dividends paid / Net income
= $150,000 / $375,000
To find the percentage, we divide the dividends per net income by 1 and multiply by 100:
Percentage of dividends per net income = (Dividends per net income / 1) * 100
= ($150,000 / $375,000) * 100
= 40%
So the percentage of dividends per net income is approximately 40%.
Now, for the second part of the question, we need to determine if the operating cash flow is higher or lower than net income. Operating cash flow refers to the cash generated by the company's normal business operations. In this case, it is not explicitly given, so we can assume that it is equal to the net income.
Therefore, the operating cash flow is equal to the net income, which means it is not higher or lower, but the same as net income.
To summarize, the percentage of dividends per net income is approximately 40%, and the operating cash flow is the same as net income.