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 $3 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 $3 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 = 3/103 =2.91 %

Profit margin for store = 1.5/100 =1.50 %

Store Net equity = Assets- Debt =380-250 = 130

Stores ROE = Net Income/ Net Equity = 10.5/130 =8.08%

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