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QUESTION 9 (4 + 2 + 2 = 8 marks) Peanut Queen and Lord of Ice are two competitors selling ice-cream. Below is the information
QUESTION 9 (4 + 2 + 2 = 8 marks) Peanut Queen and Lord of Ice are two competitors selling ice-cream. Below is the information pertaining to the two businesses for the financial year ended June 30, 2020. Net Profit ($) Cost of Goods Sold ($) Total Assets ($) Total Liabilities Gross Profit ($) Peanut Queen 95,000 100,000 400,000 150,000 150,000 Lord of Ice 180,000 800,000 600,000 225,000 400,000 Rita has $25,000 to invest in one of the businesses. She likes peanut butter ice-cream but needs to consider the financial performance of the two businesses to make an informed investment decision. Required: In the table below, calculate Net Profit Margin, Asset Turnover, Financial Leverage, and Return on Equity (ROE) ratios for the two businesses. (4 marks) Peanut Queen Lord of Ice Net Profit Margin Asset Turnover Financial Leverage ROE Based on the financial performance alone, which one of the two businesses would you recommend to Rita to invest in? Considering the components of the DuPont model, which component is driving the financial performance of the business you chose? (2 marks) Answer here: For the business you recommended, calculate ROE for the financial year ending on June 30, 2021. In your calculation, assume that: Rita's investment of $25,000 would increase the net profit of the business by $10,000 in the financial year ending June 30, 2021 compared to the financial year ended on June 30, 2020, and the $25,000 investment will be the only change to the business' Owner's Equity balance in the financial year ending June 30, 2021. (2 marks) Answer here
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