Question

The Bottlebrush Company has income from operations of $60,000, invested assets of $345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate of return on investment. Round profit margin and rate of return on investment to two decimal places. Round investment turnover to three decimal places.

Answer 1

Answer:

Return on Investment

60,000/345,000 = .173913043

net profit margin:

60,000/786,000 = 0.076335877

return on assets

60,000/345,000 = .173913043

assets turnover

sales/assets = 2.27826087

Explanation:

income from operation 60,000

invested assets 345,000

sales 786,000

net profit margin:

60,000/786,000 = 0.076335877

return on assets

60,000/345,000 = .173913043

assets turnover

sales/assets = 2.27826087

$ROE = Profit.Margin\times AssetsTO\times Leverage\\\\ROE = Profit.Margin\times AssetsTO\times \frac{Assets}{Equity}$

.173913043 = 0.076335877 x 2.27826087 x 345,000/Equity

Equity = 345,000

Return on Investment

60,000/345,000 = .173913043