Question

Yo Mamma Shops, Inc. can open a new store that will do an annual sales volume of $837,900. It will turn over its assets 1.9 times per year. The profit margin on sales will be 8%. What would net income and return on assets (investments) be for the year?

Answer 1

Answer:

Net Income = $67,032

Return on assets = 0.152 = 15.2%

Explanation:

Profit Margin = Net Income / Net sales

Net Income =Profit Margin x Net sales

Net Income = 8% x $837,900

Net Income = $67,032

Asset Turnover = Net Sales / Average total assets

1.9 = $837,900 / Average total assets

Average total assets = $837,900 / 1.9

Average total assets = $441,000

Return on Assets = Net Income / Average total Assets

Return on Assets = $67,032 / $441,000

Return on Assets = 0.152 = 15.2%