Q9BP Network Communications has total... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: Q9BP (page 79)

Network Communications has total assets of $1,500,000 and current assets of $612,000. It turns over its fixed assets three times a year. It has $319,000 of debt. Its return on sales is 8 percent. What is its return on stockholders鈥� equity?

Short Answer

Expert verified

The return on stockholder鈥檚 equity of the company is 18.05%.

Step by step solution

Fixed assets of the company

$F i x e d a s s e t s = T o t a l a s s e t - C u r r e n t a s s e t = $ 1, 500, 000 - $ 612, 000 = $ 888, 000$

Sales of the company

$S a l e = T o t a l f i x e d a s s e t 脳 F i x e d a s s e t t u r n o v e r r a t i o = $ 888, 000 脳 3 = $ 2, 664, 000$

Net income of the company

$N e t i n c o m e = S a l e s 脳 P r o f i t m a r g i n = $ 2, 664, 000 脳 8 % = $ 213, 120$

Stockholder’s equity of the company

$S t o c k h o l d e r 鈥� s e q u i t y = T o t a l a s s e t s - T o t a l d e b t s = $ 1, 500, 000 - $ 319, 000 = $ 1, 181, 000$

Return on stockholder’s equity

$R e t u r n o n s t o c k h o l d e r 鈥� s e q u i t y = \frac{N e t i n c o m e}{S t o c k h o l d e r 鈥� s e q u i t y} = \frac{$ 213, 120}{$ 1, 181, 000} = 18.05 %$

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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

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

Retained earning	Bond payable
Accounts payable	Accrued wages payable
Prepaid expenses	Accounts receivable
Plant and equipment	Capital in excess of par
Inventory	Preferred stock
Common stock	Marketable security

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Network Communications has total assets of \(1,500,000 and current assets of \)612,000. It turns over its fixed assets three times a year. It has $319,000 of debt. Its return on sales is 8 percent. What is its return on stockholders鈥� equity?

Short Answer

Step by step solution

Fixed assets of the company

Sales of the company

Net income of the company

Stockholder’s equity of the company

Return on stockholder’s equity

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