Question
Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment 1.06 of million. The firm
Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment 1.06 of million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.8 percent. What will be the new operating return on assets ratio (i.e., net operating income total assets) for Salco after the plant's renovation? WHAT IS THE NEW OPERATING RETURN ON ASSETS
Current Assets: $503,000, Net Fixed Assets $1,478,000 Total Assets $1,981,000. Liabilities & Owner;s Equity $990,500 total Liabilities $ 1,981,000. Sales $4,630,000 Less: Cost of goods sold (3,498,000) Gross profit $1,132,000 Less: Operating expenses (496,000) Net operating income $636,000 Less: Interest expense (98,000) Earnings before taxes $538,000 Less: Taxes (35%) (188,300) Net income $349,700
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