Question

1. Use the following data concerning Grange Barley Company and the Du Pont system in problems 1 and 2. Net income = $150,000; Sales = $2.4 million; Total asset turnover = 3; and Equity multiplier = 2.5

Grange Barley does not have any preferred stock outstanding. Calculate the return on assets for Grange Barley Company.

options: A) 31.25% B) 23.5% C) 18.75%

2. Use the following data concerning Grange Barley Company and the Du Pont system in problems 1 and 2. Net income = $150,000; Sales = $2.4 million; Total asset turnover = 3; and Equity multiplier = 2.5

Grange Barley does not have any preferred stock outstanding.

Calculate the return on equity for Grange Barley Company

options:

	A) 48.88%
	B) 78.125%
	C) 58.75%

Answer 1

1)Correct option is "C"-18.75%

Return on asset = (Net income /sales )*Asset turnover

                   Or Profit margin ratio * Asset turnover

                     = (150000/2400000)*3

                     = .0625*3

                     = .1875 or 18.75%

2)None of option provided is correct.

Return on equity = Return on asset (as above) * Equity multiplier

                    = 18.75* 2.5

                    = 46.88%