The R. M. Smithers Corporation earned an operating profit margin of 11.5 percent
ID: 2736831 • Letter: T
Question
The R. M. Smithers Corporation earned an operating profit margin of 11.5 percent based on sales of $9.8 million and total assets of $5.2 million last year. What was Smithers' total asset turnover ratio? During the coming year, the company's president has set a goal of attaining a total asset turnover of 3.1. How much must firm sales increase, other things being the same, for the goal to be achieved? (State your answer in both dollars and the corresponding percent increase in sales.) What was Smithers' operating return on assets last year? Assuming the firm's operating profit margin remains the same, what will the operating return on assets be next year if the total asset turnover goal is achieved? What was Smithers' total asset turnover ratio? The company's total asset turnover ratio is 1.88. (Round to one decimal place.) During the coming year, the company's president has set a goal of attaining a total asset turnover of 3.1. How much must firm sales increase, other things being the same, for the goal to be achieved? (State your answer in both dollars and the corresponding percent increase in sales.) The firm sales increase must be $ 16.12 million (Round to two decimal places.) or %. (Round to one decimal place.) What was Smithers' operating return on assets last year? The operating return on assets was 21.67 %. (Round to one decimal place.) Assuming the firm's operating profit margin remains the same, what will the operating return on assets be next year if the total asset turnover goal is achieved? The new operating return on assets will be 35.65 %. (Round to one decimal place.)Explanation / Answer
Answer:a) Total asset turnover = sales /total assets
=$9.8 m/$5.2 m = 1.88 or 1.9 rounded to one decimal
Answer:b)
3.1 = sales/5.2m
Sales= 3.1×5.2m = 16.12 million
Increase in sales = 16.12m – 9.8m = 6.32 m
% increase in sales =(6.32/9.8)*100=64.49% or 64.5 % rounded to one decimal
Answer:c) Operating income return on investment = operating income/total assets
Operating profit margin = operating income/sales
Operating income = 11.5%×9,800,000 = $1,127,000
Operating income return on investment = 1,127,000×100/5,200,000 = 21.67% or 21.7% rounded to one decimal.
Answer:d) If the total asset turnover is achieved, the total sales will be $16.12 million.
Operating income = 11.5%×16.12 m = $1.8538 m
Operating income return on investment = 1.8538×100/5.2 = 35.65% or 35.7% rounded to one decimal
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