Question

In response to complaints about high prices, a grocery chain runs the following advertising campaign: "If you pay your child $1.50 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do." You’ve collected the following information from the grocery chain’s financial statements: ($ in millions) Sales $ 680.0 Net income 10.2 Total assets 380.0 Total debt 270.0 a. What is the profit margin for child and store? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the store's ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

a. Profit margin of store = 1.5%

a. Profit margin of child is $3 because store is making 1.5% profit margin.

b.Return on equity ( store) = 9%

Explanation:

As we know that: Profit margin= (Operating income / Revenue ) * 100

                                        =    10.2 / 680 * 100

                                        = 1.5%  ( Store)

 Profit margin (child) =

ROE=?

Accounting equation: Assets = liabilities + equity

                       380- 270 = Equity

                       Equity = $110 (million)

As we know that: Return on equity = Net income / Shareholder equity

                                                       =  10.2 / 110

                                                       = .09 or 9%