Question
The annual sales forSalco, Inc. were $4.75 million last year. Thefirm's end-of-year balance sheet was asfollows: Current assets $ 501000 Liabilities $1,005,000 Net fixed assets
The annual sales forSalco, Inc. were $4.75 million last year.
Thefirm's end-of-year balance sheet was asfollows:
Current assets
$ 501000
Liabilities
$1,005,000
Net fixed assets
$1,509,000
Owners' equity
$1,005,000
Total Assets
$2,010,000
Total
$2,010,000
Salco's income statement for the year was asfollows:
Sales
$4,750,000
Less: Cost of goods sold
(3,495,000)
Gross profit
$1,255,000
Less: Operating expenses
(493,000)
Net operating income
$762,000
Less: Interest expense
(90,000)
Earnings before taxes
$672,000
Less: Taxes (35 %)
(235,200)
Net income
$436,800
Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $ 1.07
$1.07 million. The firm will maintain its present debt ratio of 50
50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.9
13.9 percent. What will be the new operating return on assets ratio(i.e., net operating incomedivided by
total assets) for Salco after theplant's renovation?
Thecompany's new operating return on assets is?
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