Question

The Balance Sheets at the end of each of the first two years of operations indicate the following: 2006 2005 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 150,000 80,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in-Capital in excess of par-common stock 60,000 60,000 Retained earnings 325,000 210,000 If Net Income is $115,000 and interest expense is $30,000 for 2006, what is the return on total assets for 2006 (round percent to one decimal place)

Answer 1

Answer:

Return on Assets (2006) = 7.60 %

Explanation:

Return on Assets = Earnings Before Interest and Tax  ÷ Total Assets

Therefore,

Return on Assets (2006) = ($115,000 + $30,000) / ( $600,000 + $60,000 +  $900,000) × 100

                                         = $118,000 / $1,560,000 × 100

                                         = 7.60 % (one decimal place)