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11 September, 10:42

Yo Mamma 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%. What would net income and return on assets (investments) be for the year?

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  1. 11 September, 12:24
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    Net Income = $67,032

    Return on assets = 0.152 = 15.2%

    Explanation:

    Profit Margin = Net Income / Net sales

    Net Income = Profit Margin x Net sales

    Net Income = 8% x $837,900

    Net Income = $67,032

    Asset Turnover = Net Sales / Average total assets

    1.9 = $837,900 / Average total assets

    Average total assets = $837,900 / 1.9

    Average total assets = $441,000

    Return on Assets = Net Income / Average total Assets

    Return on Assets = $67,032 / $441,000

    Return on Assets = 0.152 = 15.2%
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