Problems

Chapter 3

Problems

1. Dental Delights has two divisions. Division A has a profit of $200,000 on sales of $4,000,000. Division B is only able to make $30,000 on sales of $480,000. Based on the profit margins (returns on sales), which division is superior?

3-1. Solution:

Dental Delights

Division A Division B

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Division B is superior

3. Bass Chemical, Inc., is considering expanding into a new product line. Assets to support this expansion will cost $1,200,000. Bass estimates that it can generate $2 million in annual sales, with a 5 percent profit margin. What would net income and return on assets (investment) be for the year?

3-3. Solution:Bass Chemical, Inc.

[pic] 4. Franklin Mint and Candy Shop can open a new store that will do an annual sales volume of $750,000. It will turn over its assets 2.5 times per year. The profit margin on sales will be 6 percent. What would net income and return on assets (investment) be for the year?

3-4. Solution:

Franklin Mint and Candy Shop

[pic] 8. Sharpe Razor Company has total assets of $2,500,000 and current assets of $1,000,000. It turns over its fixed assets 5 times a year and has $700,000 of debt. Its return on sales is 3 percent. What is Sharpe’s return on stockholders’ equity?

3-8. Solution:

Sharpe Razor Company

total assets $2,500,000 – current assets 1,000,000 Fixed assets $1,500,000

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total assets $2,500,000 –debt 700,000 Stockholders’ equity $1,800,000

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11. Acme Transportation Company has the following ratios compared to its industry for 2009.

| |Acme Transportation |Industry |
|Return on assets…………… | 9% | 6% |
|Return on equity……………