Ann Taylor Retail, Inc., sells professional women’sapparel through company-owned
ID: 2457701 • Letter: A
Question
Ann Taylor Retail, Inc., sells professional women’sapparel through company-owned retail stores. Recent financialinformation for Ann Taylor is provided below (all number inthousands):
Year2 Year 1
NetIncome 81,872 63,276
InterestExpense 2,083 3,641
End ofyear Year2 Year1 Year 0
Totalassets 1,492,906 1,327,338 1,256,397
Total stockholders’ equity 1,034,482 926,744 818,856
Assume the apparel industry average rate earned on total assetsis 8.2%, and the average rate earned on stockholders’ equityis 16.7% for Year 1.
(Note: (a) Year 2 rate earned on total assets,6.0%)
Explanation / Answer
A.
B.
A.
Year 2 Rate earned on totalassets = Net income / Average of total assets Average of totalassets = ($1492906 + $1327338 ) / 2 = $1,410,122 Net Income = $81,872 Rate earned on totalassets = $81872 / 1410122 = $0.058 or $0.06 Year 1 Rate earned on totalassets = $81872 /( 1327338 + 1256397)/2 = $81872 / 1291868 = $0.063 OR $0.06B.
Year 2 Rate earned on stockholder's equity = Net income / Average of total stockholder'sequity = $81872 / (1034482 + 926744)/2 = $81872 / 980613 = $0.08 Year 1 Rate earned on stockholder's equity = $81872 / (926744 + 818856)/2 = $81872 / 872800 = $0.09 Rate earned on total asset inyear2 and year 1 is same, while rate earned on totalstockholder's equity in year1 decrease in year 2.hence profit performance was decreased in year 2 as compareto year1Related Questions
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