Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Net operating profit after taxes (NOPAT) is defined as which of the following?

Gross profit minus operating expenses

Net income plus interest expense

Net sales minus cost of goods sold

Operating income multiplied by (1 - tax rate)

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Verified step by step guidance

Understand the concept of Net Operating Profit After Taxes (NOPAT): NOPAT is a measure of a company's profitability that excludes the impact of debt financing and focuses solely on operating performance. It is calculated by adjusting operating income for taxes.

Identify the formula for NOPAT: The formula is NOPAT = Operating Income × (1 - Tax Rate). This formula adjusts operating income to reflect the taxes that would be paid if the company had no debt.

Break down the components of the formula: Operating Income represents the profit generated from core business operations before interest and taxes. The Tax Rate is the percentage of income paid as taxes, and (1 - Tax Rate) represents the portion of income retained after taxes.

Compare the given options to the formula: Evaluate each option to see if it matches the formula. For example, 'Gross profit minus operating expenses' does not account for taxes, 'Net income plus interest expense' includes non-operating items, and 'Net sales minus cost of goods sold' represents gross profit, not operating income.

Conclude that the correct answer is 'Operating income multiplied by (1 - tax rate)' because it aligns with the formula for NOPAT and accurately reflects the concept of post-tax operating profitability.