Question
The annual sales for Salco, Inc. were $4.56 million last year. The firm's end-of-year balance sheet & Salco's income statement for the year was as
The annual sales for Salco, Inc. were $4.56 million last year. The firm's end-of-year balance sheet & Salco's income statement for the year was as follows:
Current assets | $507,000 | Liabilities | $995,500 |
Net fixed assets | 1484000 | Owners' equity | 995,500 |
Total Assets | $1,991,000 | Total | $1,991,000 |
Sales | $4,560,000 | ||
Cost of goods sold | (3,494,000) | ||
Gross profit | $1,066,000 | ||
Operating expenses | (507,000) | ||
Net operating income | $559,000 | ||
Interest expense | (106,000) | ||
Earnings before taxes | $453,000 | ||
Taxes (35%) | (158,550) | ||
Net income | $294,450 |
b. Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $ 1.03 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 13.7 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?
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