Exercise 9-11 Shonrock International is considering a significant expansion to i

Question

Exercise 9-11 Shonrock International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Richard Farley, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Donna Beson, the company's CFO, has provided the following projections based on results with and without the new products. out New n New Sales revenue Net income Average total assets ucts $11,992,500 $481,720 $5,302,000 $16,821,200 $889,000 $13,840,000 (a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Round answers to 0 decimal place, e.g. 2% and asset turnover to 1 decimal places e.g. 6.2) ithout new produc ith new The company's return on assets The company's profit margin The company's asset turnover

Explanation / Answer

1) Return on assets = Net income ÷ Average Total Assets

*)without new product

=481720÷5302000= .9085 or 9.085%

*)with new product

=889000÷13840000=.0642 or 6.423%

2) profit margin = net income ÷ sales revenue

*)without new product

=481720÷11992500=.0401 or 4.0168%

*)with new product

=889000÷16821200=.0528 or 5.2849%

3) Asset Turnover =sales revenue÷average total assets

*)without new product

=1192500÷5302000=.2249 or 22.49%

*)with new product

=16821200÷13840000=1.2154 or 121.54%

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