1. **Stating the problem:** We have financial data for Company AHL and need to calculate several financial metrics: ROI, Cost of Capital, Target Profit, Residual Income, WACC, EVA, Profit Margin, and TATO. 2. **Given data:** - Total assets = 200000 - Total current liabilities = 90000 - Sales = 80000 - Net profit = 36000 - Bank loan = 50000 - Common stock = 60000 - Interest expense = 4000 - Dividend paid = 4800 - Tax rate = 25% (0.25) - Interest after tax = 3000 --- 3. **Calculate ROI (Return on Investment) %:** ROI formula: $$ROI = \frac{Net\ Profit}{Total\ Assets} \times 100\%$$ $$ROI = \frac{36000}{200000} \times 100\% = 18\%$$ --- 4. **Calculate Cost of Capital %:** Cost of capital is the weighted average cost of debt and equity. - Total financing = Bank loan + Common stock = 50000 + 60000 = 110000 - Cost of debt after tax = $$\frac{Interest\ expense \times (1 - Tax\ rate)}{Bank\ loan} = \frac{4000 \times (1 - 0.25)}{50000} = \frac{4000 \times 0.75}{50000} = 0.06 = 6\%$$ - Cost of equity is not given, but we can estimate cost of capital as weighted average of debt and equity costs. Assuming cost of equity = ROI = 18% (approximation), then: $$Cost\ of\ capital = \frac{50000}{110000} \times 6\% + \frac{60000}{110000} \times 18\% = 0.4545 \times 6\% + 0.5455 \times 18\% = 2.727\% + 9.818\% = 12.545\%$$ --- 5. **Calculate Target Profit $:** Target profit = Cost of capital \times Total assets $$Target\ profit = 0.12545 \times 200000 = 25090$$ --- 6. **Calculate Residual Income $:** Residual income = Net profit - Target profit $$Residual\ income = 36000 - 25090 = 10910$$ --- 7. **Calculate WACC (Weighted Average Cost of Capital) %:** WACC formula: $$WACC = \frac{E}{V} \times Re + \frac{D}{V} \times Rd \times (1 - Tc)$$ Where: - $E$ = Equity = 60000 - $D$ = Debt = 50000 - $V$ = Total financing = 110000 - $Re$ = Cost of equity = 18% (approximation) - $Rd$ = Cost of debt = 8% (interest expense / bank loan = 4000/50000 = 8%) - $Tc$ = Tax rate = 25% Calculate after tax cost of debt: $$Rd \times (1 - Tc) = 0.08 \times (1 - 0.25) = 0.06$$ Calculate WACC: $$WACC = \frac{60000}{110000} \times 0.18 + \frac{50000}{110000} \times 0.06 = 0.5455 \times 0.18 + 0.4545 \times 0.06 = 0.09818 + 0.02727 = 0.12545 = 12.545\%$$ --- 8. **Calculate EVA (Economic Value Added) $:** EVA formula: $$EVA = NOPAT - (WACC \times Capital)$$ NOPAT (Net Operating Profit After Tax) = Net profit + Interest expense \times (1 - Tax rate) $$NOPAT = 36000 + 4000 \times (1 - 0.25) = 36000 + 3000 = 39000$$ Capital = Total assets = 200000 Calculate EVA: $$EVA = 39000 - (0.12545 \times 200000) = 39000 - 25090 = 13910$$ --- 9. **Calculate Profit Margin %:** Profit margin formula: $$Profit\ Margin = \frac{Net\ Profit}{Sales} \times 100\%$$ $$Profit\ Margin = \frac{36000}{80000} \times 100\% = 45\%$$ --- 10. **Calculate TATO (Total Asset Turnover) %:** TATO formula: $$TATO = \frac{Sales}{Total\ Assets} \times 100\%$$ $$TATO = \frac{80000}{200000} \times 100\% = 40\%$$ --- **Final answers:** - ROI = 18% - Cost of capital = 12.545% - Target profit = 25090 - Residual income = 10910 - WACC = 12.545% - EVA = 13910 - Profit Margin = 45% - TATO = 40%