The following information pertains to Newman Company. Assume that all balance sh
ID: 2455118 • Letter: T
Question
The following information pertains to Newman Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume 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 Stockholders’ equity-common 155,000 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 6,000000 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%
Explanation / Answer
CALCULATION OF RATE EARNED ON TOTAL ASSETS:
NET INCOME=$25,000
TOTAL ASSETS=$3,10,000
RATE EARNED ON TOTAL ASSETS FOR THIS COMPANY=NET INCOME/TOTAL ASSETS
=$25,000/$3,10,000
=0.0806
=8.1%
HENCE A.8.1% IS CORRECT
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