Problem 1 Dulaney\'s Stores has posted the following yearly earnings and expense

Question

Problem 1 Dulaney's Stores has posted the following yearly earnings and expenses EE Click the icon to view the yearly data a. Dulaney's current profit margin is 9.5 %. (Enter your response rounded to one decimal place.) Dulaney's current yearly ROA is 48.55 %. (Enter your response rounded to one decimal place.) b. Suppose COGS and merchandise inventory were each cut by 20% The new pretax profit margin is 23 %. (Enter your response rounded to one decimal place.) The new ROA is 123.4 %. (Enter your response rounded to one decimal place.) c. Based on the current profit margin in part a., Dulaney would have to generate $1 in additional sales in order to have the same effect on pretax earnings as a 20% Question Help decrease in merchandise costs. (Enter your response rounded to the nearest dollar.) More Info Earnings and Expenses (Year Ending January 2012) Sales Cost of goods sold (COGS) Pretax earnings Selected Balance Sheet Items Merchandise Inventory Total assets $46,000,000 S31,000,000 $4,370,000 Enter your answer in the answer box and then click Check Answer. $2,185,000 $9,000,000 All parts showing Cle

Explanation / Answer

Current COGS = $31,000,000
Decrease in COGS = 20%

Decrease in COGS = 20% * $31,000,000
Decrease in COGS = $6,200,000

Additional Sales = Decrease in COGS / Profit Margin
Additional Sales = $6,200,000 / 9.5%
Additional Sales = $65,263,158

So, Dulaney would have to generate $65,263,158 in additional sales in order to have the same effect

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