Question

Database Systems is considering expansion into a new product line. Assets to support expansion will cost \(380,000. It is estimated that Database can generate\)1,410,000 in annual sales, with an 8 percent profit margin. What would net income and return on assets (investment) be for the year?

Short answer

The net income of the company is $112,800, and the return on assets is 29.68%.

Step-by-step solution

Net income

$\begin{array}{rcl}Netincome& =& Sales\times profitmargin\\ & =& \$1,410,000\times 8\%\\ & =& \$112,800\end{array}$

Return on assets

$\begin{array}{rcl}Returnonassets& =& \frac{Netincome}{Totalassests}\\ & =& \frac{\$112,800}{\$380,000}\\ & =& 29.68\%\end{array}$