Question

Polly Esther Dress 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:

This question requires us to calculate net income and return on assets for the year.

Net income

As sales and profit margin on sales is given so net income can be calculated as follow.

Net income = sales * profit margin

Net income = 837,900 * 8% = $ 71,832

Return on investment

To calculate return on asset we first have to find total asset. Total assets can be calculated as follow.

Asset turnover ratio= Sales/ Asset

Asset = 837,900/1.9 = $ 441,000

Return on asset = 71,832/441,000 = 16.29%