Answer:
a. 5.37%
b. 5.08%
Explanation:
Firstly, we need to calculate net profit before return on stockholder's equity
Sales. $4,430,000
Net income % on sales 2%
Net income. $88,600
We will also calculate total stockholder's equity
Sales. $4,430,000
Asset turnover ratio. 4.5
Total assets. $984,444
Less: current liab. ($167,000)
Less: long term liab. ($342,000)
Total stockholder's. $475,444
equity
a. Return on stockholder's equity
= Total stockholder's equity ÷ Net income
= $475,444 ÷ $88,600
= 5.37%
b. New return on stockholder's equity
Total assets $984,444
× Asset turnover ratio. 4.75
New total sales. $4,676,109
Net income % sales. 2%
Net income $93,522
Recall that total stockholder's equity = $475,444
Net income = $93,522
Therefore, New return on stockholder's
equity = Total stockholder's equity / Net income
= $475,444 ÷ $93,522
= 5.08%
