IBM Income Statement for the Year Ended December 31, Year 21

• Sales revenue: $8,000,000
• Cost of goods sold: $5,400,000
• Gross margin: $2,600,000
• Operating expenses:
  • Selling expenses: $800,000
  • Depreciation expenses: $600,000
• Operating income: $1,200,000
• Nonoperating items: $280,000
• Net income: $920,000

Balance Sheet as of December 31, Year 21

• Assets:
  • Cash: $600,000
  • Accounts receivable: $1,400,000
  • Merchandise inventory: $1,600,000
  • Equipment (less accumulated depreciation): $1,700,000
  • Nonoperating assets: $1,800,000
• Total assets: $7,100,000
• Liabilities:
  • Accounts payable: $700,000
  • Notes payable: $600,000
  • Stockholders' equity: $5,800,000
• Total liabilities and stockholders' equity: $7,100,000

Required:

a. Calculate the gross margin percentage. b. Calculate the operating margin percentage. c. Calculate the return on assets (ROA). d. Calculate the return on equity (ROE). e. IBM is considering investing $1,500,000 in a new division expected to generate additional net income of $300,000. Calculate the new ROA and ROE.