1. Dulaney’s Stores has posted the following yearly earnings and expenses: EARNI
ID: 2474140 • Letter: 1
Question
1. Dulaney’s Stores has posted the following yearly earnings
and expenses:
EARNINGS AND EXPENSES (YEAR ENDING JANUARY 2012)
Sales $50,000,000
Cost of goods sold (COGS) $30,000,000
Pretax earnings $5,000,000
SELECTED BALANCE SHEET ITEMS
Merchandise Inventory $2,500,000
Total assets $8,000,000
a. (*) What is Dulaney’s current profit margin? What is its
current yearly ROA?
b. (**) Suppose COGS and merchandise inventory were
each cut by 10%. What would be the new pretax profit
margin and ROA?
c. (**) Based on the current profit margin, how much
additional sales would Dulaney have to generate in
order to have the same effect on pretax earnings as a
10% decrease in merchandise costs?
I didn't understand previous answers
Explanation / Answer
a Current Profit Margin = Pretax Earning/ Sales*100 =5000000/50000000*100 10 Cost of Goods Sold 30000000 Decrease in Cost of Goods Sold 3000000 Pretax Earning 5000000 Decrease in Cost of Good Sold 3000000 New Pretax Earning 8000000 b New Pretax Profit Margin =8000000/50000000*100 16 Total Assets 8000000 Decrease in Inventory 250000 New Total Assets 7750000 Return on Assets =8000000/7750000*100 103.2258065 Ans c Sales would be decreased by $3000000 inorder to have the same pretax profit
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