Question

Polly Esther Dress Shops Inc. can open a new store that will do an annual sales volume of $837,900. It will turn over its assets 1.9 times per year. The profit margin on sales will be 8 percent. What would net income and return on assets (investment) be for the year?

Short answer

The net income of the company is $67,032, and the return on assets for the year is 15.20%.

Step-by-step solution

Net Income

$$\begin{gathered} Netincome=Sales\times Profitmargin \\ =\$837,900\times 8\% \\ =\$67,032 \end{gathered}$$

Calculation of total assets

$$\begin{gathered} AverageTotalassests=\frac{Netsales}{Asseststurnoverratios} \\ =\frac{\$837,900}{1.90} \\ =\$441,000 \end{gathered}$$

Calculation of Return on assets

$$\begin{gathered} Returnonassests=\frac{NetIncome}{TotalAssests} \\ =\frac{\$67,032}{\$441,000} \\ =15.20\% \end{gathered}$$