Question

Database Systems is considering expansion into a new product line. Assets to support expansion will cost $500,000. It is estimated that Database can generate $1,990,000 in annual sales, with an 7 percent profit margin. What would net income and return on assets (investment) be for the year

Answer 1

Answer:

Net income= 139,300

ROA= 27.86%

Explanation:

The assets to support the expansion is $500,000

It is estimated the entire database can generate $1,990,000

The profit is 7%

The net income can be calculated as follows

= 1,990,000×7/100

= 1,990,000×0.07

= $139,300

The ROA can be calculated as follows

= 139,300÷500,000

= 27.86%