(Evaluating

current and pro forma

profitability)

The annual sales for Salco Inc. were

$4.50

million last year. All sales are on credit. The firm's end-of-year balance sheet and income statement were in the popup window:

LOADING...

.

a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets.

b. Salco plans to renovate one of its plants, which will require an added investment in plant and equipment of

$1.00

million. The firm will maintain its present debt ratio of

0.500

when financing the new investment and expects sales to remain constant. The operating profit margin will rise to

13.0

percent. What will be the new operating return on assets for Salco after the plant's renovation?c. Given that the plant renovation in part b occurs and Salco's interest expense rises by

$50,000

per year, what will be the return earned on the common stockholders' investment? Compare this rate of return with that earned before the renovation.

a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets.

The total asset turnover is

nothingX.

(Round to two decimal places.)

Salco Inc. Balance Sheet
Current assets	$ 500,000		Liabilities	$1,000,000
Net fixed assets	1,500,000		Owners' equity	1,000,000
	$2,000,000			$2,000,000

(Click on the following icon

in order to copy its contents into a spreadsheet.)

Salco Inc. Income Statement
Sales	$ 4,500,000
Less cost of goods sold	(3,500,000)
Gross profit	$ 1,000,000
Less operating expenses	(500,000)
Operating profits	$ 500,000
Less interest expense	(100,000)
Earnings before taxes	$ 400,000
Less taxes (21%)	(84,000)
Net income	$ 316,000

SPREADSHEET

Current assets $ 500,000 Liabilities $1,000,000 Net fixed assets 1,500,000 Owners' equity 1,000,000 @UNDBBAR{$2,000,000} @UNDBBAR{$2,000,000}