Rhanda Merchandising Inc.
Income Statement
Total revenue $2,980,000
-Cost of goods sold ($1,520,828)
Gross profit $1,459,172
-Depreciation expense ($250,000)
Operating profit $1,209,172
Gain on condemnation of company property $266,000
-Loss of assets from meteor strike ($656,000)
Income from continuing operations before taxes $819,172
-Income taxes ($207,000)
Income from continuing operations after taxes $612,172
Gain from discontinued operations $755,000
-Loss from discontinued operations ($475,000)
Net income $892,172
The correct selection is option (b).
Annual benefits and costs for each project are presented.
Calculating the B-C ratio for project A, we find:
Annual benefits = $1,800,000;
Annual costs = $2,000,000;
B-C ratio = Annual benefits / Annual costs = $1,800,000 / $2,000,000 = 0.90.
Project A's B-C ratio is 0.90.
In a similar manner, for project B:
Annual benefits = $5,600,000;
Annual costs = $4,200,000;
B-C ratio = $5,600,000 / $4,200,000 = 1.33.
The B-C ratio for Project B is 1.33.
Following the same calculations for projects C, D, and E yields respective B-C ratios of 1.24, 0.93, and 1.22.
Considering that the agency will fund projects with a B-C ratio of at least 1, projects A and D will not be funded. Among the remaining, Project B offers the highest B-C ratio, making it the selected project.
Company 4's times interest earned ratio stands at 14.3.
