Question 4-11

s 296 118 cah sakes with the semaring 83 beng t Evaluating current and pro forma profitability) (Financial ratios-investment 4-10.e annual sales for Salco, Inc. were $4.,5 million last year. All sales are on r The firm's end-of-year balance sheet was as follows: credit Current assets Net fixed assets 500,000 Liabilities 1,000,000 900.000 Owners' equity The firm's income state s income statement for the year was as follows: Sales Cast of goods sold Gross profit Operating expenses Operating profits Interest expense Earnings before taxes income taxes (50%) $4,500,000 13,500,000) $1,000,000 (500,000) 500,000 (100,000) 400,000 (200,000) Net income a. Calculate Salco's total asset turnover, operating profit margin, and operating a. return on assets. b. Salco plans to renovate one of its plants, which will require an added invest- ment in plant and equipment of $1 million. The firm will maintain its pres- ent debt ratio of 0.5 when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13 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 stock- holders' investment? Compare this rate of return with that earned before the renovation. HitFinancial analysis) The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable eve for the firm, Brent Vehlim, has decided to seek a line of credit totaling $80,000 from the firm's bank. In the past, the company has relied on its suppliers to financea lar arge part of its needs for inventory. However, in recent months tight money