2A4H THE FINANCIAL STATEMENTS OF LARK INC. FOR LAST YEAR ARE SHOWN BE...

109.

CSO: 2A4h

LOS: 2A4h

The financial statements of Lark Inc. for last year are shown below.

Income Statement ($000)

Revenue

$4,000

Cost of sales

2,900

Gross margin

1,100

General & administrative

500

Interest

100

Taxes

150

Net income

$ 350

Balance Sheet ($000)

Current assets

$ 800

Current liabilities

$ 500

Plant & equipment

3,200

Long-term debt

$1,000

Common equity

2,500

Totals

$4,000

Totals

$4,000

If Lark’s book values approximate market values and if the opportunity costs of debt and

equity are 10% and 15%, respectively, what was the economic profit for Lark last year?

a.

($125,000).

b.

($25,000).

c.

$0.

d.

$350,000.

Section B: Corporate Finance