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11111nata11111 [884]
3 years ago
14

Last year Ann Arbor Corp had $155,000 of assets, $305,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 3

7.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE
Business
1 answer:
mezya [45]3 years ago
8 0

Answer:

13.42%

Explanation:

The computation of return on equity is shown below:-

Debt = Assets × ( Debt to assets ratio)

$155,000 × 37.5%

= $58,125

Equity = Total Assets - Debt

= $155,000 - $58,125

= $96,875

Old Return on equity = Old Net Income ÷ Equity

=$20,000 ÷ $96,875

= 20.64%

New Return on equity = New Net Income ÷ Equity

= $33,000 ÷ $96,875

= 34.06%

Increased in Return on equity = New Return on equity - Old Return on equity

= 34.06% - 20.64%

= 13.42%

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Explanation:

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Goods are purchased and added to the the beginning inventory, the sale for the period is deducted from it. the residual value is the value of ending Inventory.

In This question it is assumed that there is $26,000 of beginning inventory of the goods. $470,000 of the purchases were made and at the end of the year there was $42,000 balance of inventory.

We can calculate the deduction value as follow

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Answer:

The answer is B.

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