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Chapter 2: 2BP (page 78)

Database Systems is considering expansion into a new product line. Assets to support expansion will cost \(380,000. It is estimated that Database can generate\)1,410,000 in annual sales, with an 8 percent profit margin. What would net income and return on assets (investment) be for the year?

Short Answer

Expert verified

The net income of the company is $112,800, and the return on assets is 29.68%.

Step by step solution

01

Net income

Netincome=Sales脳profitmargin=$1,410,000脳8%=$112,800

02

Return on assets

Returnonassets=NetincomeTotalassests=$112,800$380,000=29.68%

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Most popular questions from this chapter

The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.

Stud Clothier

Balance sheet 20X1

Assets

Liabilities and Equity

Cash

\)60,000

Account payable

\(220,000

Account receivable

240,000

Accrued taxes

30,000

Inventory

350,000

Bonds payable (long term)

150,000

Plant and equipment

410,000

Common stock

80,000

Paid in capital

200,000

Retained earnings

380,000

Total assets

\)1,060,000

Total LIbilities and Equity

$1,060,000

Compute the following:

c. Debt to total assets ratio.

The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.

Stud Clothier

Balance sheet 20X1

Assets

Liabilities and Equity

Cash

\)60,000

Account payable

\(220,000

Account receivable

240,000

Accrued taxes

30,000

Inventory

350,000

Bonds payable (long term)

150,000

Plant and equipment

410,000

Common stock

80,000

Paid in capital

200,000

Retained earnings

380,000

Total assets

\)1,060,000

Total LIbilities and Equity

$1,060,000

Compute the following:

d. Assets turnover ratio.

Quantum Technology had \(669,000 of retained earnings on December 31, 20X2. The company paid common dividends of \)35,500 in 20X2 and had retained earnings of $576,000 on December 31, 20X1. How much did Quantum Technology earn during 20X2, and what would earnings per share be if 47,400 shares of common stock were outstanding?

Elizabeth Tailors Inc. has assets of $8,940,000 and turns over its assets 1.9 times per year. Return on assets is 13.5 percent. What is the firm鈥檚 profit margin (returns on sales)?

Prepare an income statement for Virginia Slim Wear. Take your calculations all the way to computing earnings per share.

Sales

1,360,000

Shares outstanding

104,000

Cost of goods sold

700,000

Interest expenses

34,000

Selling and administration expenses

49,000

Depreciation expenses

23,000

Preferred stock dividend

86,000

Taxes

100,000
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