In response to complaints about high prices, a grocery chain runs the following

Question

In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $9 to go buy $100 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s financial statements:

In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $9 to go buy $100 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s financial statements:

Explanation / Answer

Profit margin for child = net income*100/revenues = 9*100/(100) = 9%

Profit margin for company = net income*100/revenues =(9/2)*100/(100) = 4.5%

ROE

Equity = assets-debt = 460-330 = 130

ROE = net income/equity = 25.2*100/130 = 19.38%

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