CHAPTER 3
HOMEWORK
1) Billy’s Chrystal Stores, Inc., has assets of $5,960,000 and turns over its assets 1.9 times per year. Return on assets is 8 percent. |
What is the firm’s profit margin (return on sales)? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
Profit margin | % |
Explanation: Sales | = Assets × Total asset turnover | $11,324,000 | = $5,960,000 × 1.9 | | | Net income | = Assets × Return on assets | $476,800 | = $5,960,000 × 8% |
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Net income | = $476,800 / $11,324,000 = 4.21% | | |
2)Polly Esther Dress Shops, Inc., can open a new store that will do an annual sales volume of $1,284,400. It will turn over its assets 2.6 times per year. The profit margin on sales will be 6 percent. |
What would net income and return on assets (investment) be for the year? (Round your return on assets to 1 decimal place. Omit the "$" and "%" signs in your response.) |
| | | Net income | $ | | Return on assets | | % | |
Explanation: Assets | = | -------------------------------------------------
Sales | | | Total asset turnover | | | | | | = | -------------------------------------------------
$1,284,400 | = $494,000 | | | 2.6 | |
| | | Net income | = | Sales × Profit margin | | = | $1,284,400 × .06 = $77,064 | | | |
Return on assets (investment) | = | -------------------------------------------------
Net income | | | | Total assets | | | | | | | = | -------------------------------------------------
$77,064 | = 15.6% | | | | |
3) Dr. Zhivago Diagnostics Corp. income statement for 2010 is as follows: |
| | | Sales | $ | 2,710,000 | Cost of goods sold | | 1,850,000 | | | | Gross profit | | 860,000 | Selling and administrative expense | | 346,000 | | | | Operating profit | | 514,000 | Interest expense | | 58,000 | | | | Income before taxes | | 456,000 | Taxes (30%)