Question

The following information pertains to Newman Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.
Assets Cash and short-term investments $40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders' Equity Current liabilities $60,000
Long-term liabilities 95,000
Common stock 80,000
Retained earnings 75,000
Total liabilities and stockholders' equity $310,000
Income Statement Sales $90,000
Cost of goods sold 45,000
Gross margin $45,000
Operating expenses 20,000
Net income $25,000
Number of shares of common stock 6,000
Market price of common stock $40
Dividends per share $1.00
Cash provided by operations $40,000

What is the rate earned on total assets for this company?

a. 8.1%
b. 6.8%
c. 10.5%
d. 16.1%

Answer 1

Answer:

a. 8.1%

Explanation:

Calculation to determine the rate earned on total assets for this company

Using this formula

Rate earned on total assets=Net income /Total Assets

Let plug in the formula

Rate earned on total assets=$25,000/$310,000

Rate earned on total assets=0.0806*100

Rate earned on total assets=8.06%

Rate earned on total assets=8.1% (Approximately)

Therefore the rate earned on total assets for this company will be 8.1%