Given the following data, what is AAC\'s 2014 Operating ROA? Keep in mind, opera
ID: 2734006 • Letter: G
Question
Given the following data, what is AAC's 2014 Operating ROA? Keep in mind, operating capital is the not the same thing as total assets.
Marginal Tax Rate =35%
Effective Tax Rate = Tax expense/pre-tax income = 34.603%
AboveAverage Corporation (AAC) Balance Sheet 2014 2013 Assets Current assets: Cash $3,916,040 $4,386,040 Marketable securities $2,525,000 $1,875,000 Accounts receivable, net 3,249,500 $3,055,500 Inventories 2,990,000 3,040,000 Total current assets 12,680,540 $12,356,540 Net Fixed assets 2,225,500 $2,000,000 Non-amortizable intangible assets 125,000 $90,000 Total assets $15,031,040 $14,446,540 Liabilities and Stockholders’ Equity Current Liabilities: Notes Payable due within one year $1,000,000 $1,000,000 Accounts payable and accrued liabilities 2,221,000 $2,091,500 Federal income taxes payable 130,000 $300,000 Total current liabilities 3,351,000 $3,391,500 Notes payable due after one year 2,000,000 $3,000,000 Long-term bonds 1,500,000 $2,465,000 Stockholders’ equity: Preferred stock 240,000 $240,000 Capital stock 1,000,000 $600,000 Additional paid-in capital 4,000,000 $2,400,000 Retained earnings 2,940,040 $2,350,040 Total stockholders’ equity 8,180,040 $5,590,040 Total liabilities and stockholders’ equity $15,031,040 $14,446,540Explanation / Answer
Return on Assets = Net Income/ Average total Assets
(Average assets are commonly calculated by adding the beginning and ending values of assets and dividing by 2)
= $1,008,000/[($15,031,040+$14,446,540)/2]
= $1,008,000/$14,738,790
= 6.84%
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