Question

(Financial statement​ analysis) The annual sales for​ Salco, Inc. were $4.58 million last year.

Current assets	$505,000		Liabilities	$1,009000
Net fixed assets	1,513,000		​Owners' equity	$1,009,000
Total Assets	$2,018,000		Total	$2,018,000

Salco's income statement for the year was as​ follows Sales	$4,580,000
​Less: Cost of goods sold	(3,507,000)
Gross profit	$1,073,000
​Less: Operating expenses	(492,000)
Net operating income	$581,000
​Less: Interest expense	(109,000)
Earnings before taxes	$472,000
​Less: Taxes ​(35 %35%​)	(165,200)
Net income	$306,800

   Please Show Work.

   A) Calculate​ Salco's total asset​ turnover, operating profit​ margin, and operating return on assets.

B) Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $1.03 million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.1percent. What will be the new operating return on assets ratio​ (i.e., net operating income divided by ÷total assets) for Salco after the​ plant's renovation?

C) Given that the plant renovation in part (b​) occurs and​ Salco's interest expense rises by $51,000 per​ year, what will be the return earned on the common​ stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this​ comparison, did the renovation have a favorable effect on the profitability of the​ firm?

A..) Calculate​ Salco's total asset​ turnover, operating profit​ margin, and operating return on assets.

The​ company's total asset turnover is times.  

B..) The new operating return on assets for Salco after the plant renovation:

C..)   Return earned on the common stockholders’ investment:

Answer 1