Keller Cosmetics maintains an operating profit margin of 8.55% and a sales-to-as
ID: 2720920 • Letter: K
Question
Keller Cosmetics maintains an operating profit margin of 8.55% and a sales-to-assets ratio of 3.00. It has assets of $610,000 and equity of $410,000. Interest payments are $41,000 and the tax rate is 30%.
a) What is the return on Assets?
b) What is the return on Equity?
Note: Please don't round immediate calculations, round your answers to 2 decimal places!
Keller Cosmetics maintains an operating profit margin of 8.55% and a sales-to-assets ratio of 3.00. It has assets of $610,000 and equity of $410,000. Interest payments are $41,000 and the tax rate is 30%.
a) What is the return on Assets?
b) What is the return on Equity?
Note: Please don't round immediate calculations, round your answers to 2 decimal places!
Explanation / Answer
sales to asset ratio = sales / assets = 3 = sales/ 610000 = sales = 930000
net income = 930000*8.55% = 79515 - 41000 = 38515 - 30% tax = 26960.5
return on assets = 26960.5/610000 = .04419*100 = 4.42%
Return on equity = 26960.5 / 410000 = .0657*100 = 6.57%
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