The annual sales for Salco, Inc. were

$ 4.73$4.73

million last year. The firm's end-of-year balance sheet was as follows:

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. Salco's income statement for the year was as follows:

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.

a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets.

b.Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of

$ 1.02$1.02

million. The firm will maintain its present debt ratio of

5050

percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to

13.313.3

percent. What will be the new operating return on assets ratio (i.e., net operating

incomedivided by total

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

$ 45 comma 000$45,000

per year, what will be the return earned on the common stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this comparison, did the renovation have a favorable effect on the profitability of the firm?Current assets

$ 510 comma 000$510,000

Liabilities

$ 1 comma 001 comma 000$1,001,000

Net fixed assets

1 comma 492 comma 0001,492,000

Owners' equity

1 comma 001 comma 0001,001,000

Total Assets

$ 2 comma 002 comma 000$2,002,000

Total

$ 2 comma 002 comma 000$2,002,000

Sales	$ 4 comma 730 comma 000$4,730,000
Less: Cost of goods sold	( 3 comma 499 comma 000 )(3,499,000)
Gross profit	$ 1 comma 231 comma 000$1,231,000
Less: Operating expenses	( 491 comma 000 )(491,000)
Net operating income	$ 740 comma 000$740,000
Less: Interest expense	( 90 comma 000 )(90,000)
Earnings before taxes	$ 650 comma 000$650,000
Less: Taxes (35 %35%)	( 227 comma 500 )(227,500)
Net income	$ 422 comma 500$422,500