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

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

Calculation of total assets

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

Calculation of Return on assets

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