At the end of the year, the following information was obtained from the accounting records of Harrison Electronics, Inc.
Sales (all on credit) .......................... 2,750,000
Cost of goods sold .......................... 1,781,000
Average Inventory .......................... 375,000
Average accounts receivable ............ 282,000
Interest expense ............................ 45,000
Income tax expense ........................ 84,000
Net income .................................. 159,000
Average investment in assets .............. 1,800,000
Average stockholders' equity ............ 895,000
Instructions
a. From the information given, compute the following.
1. Inventory turnover.
2. Accounts receivable turnover.
3. Total operating expenses.
4. Gross profit percentage.
5. Return on average stockholders' equity.
6. Return on average assets.
b. Harrison Electronics has an opportunity to obtain a long-term loan at an annual interest rate of 10 percent and could use this additional capital at the same rate of profitability as indicated by the given data. Would obtaining the loan be desirable from the viewpoint of the stockholders? Explain.