The Anderson Corporation (an all-equity-financed firm) has a sales level of $280
ID: 2731695 • Letter: T
Question
The Anderson Corporation (an all-equity-financed firm) has a sales level of $280, 000 with a 10 percent profit margin before interest and taxes. To generate this sales volume, the firm maintains a fixed-asset investment of $100, 000. Currently, the firm maintains $50, 000 in current assets. Determine the total asset turnover for the firm and compute the rate of return on total assets before taxes. Compute the before-tax rate of return on assets at different levels of current assets starting with $10, 000 and increments to $100, 000.Explanation / Answer
The Anderson Corporation All Amounts in $ a. Total Asset Turnover = Turnover / Total Assets = $ 280,000 / ($ 100,000 + $ 50,000) = 1.87 : 1 Return on Total Assets before Taxes = Return (Net Income) / Total Assets Total Assets = $ 150,000 Net Income = 10% of $ 280,000 = $ 28,000 Return on Total Assets = $ 28,000 / $ 150,000 = 18.67% b. Before Tax Return on Assets at various levels of current assets Net Income Total Assets Return on Total Assets 28000 110000 25.45% 125000 22.40% 140000 20.00% 155000 18.06% 170000 16.47% 185000 15.14% 200000 14.00%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.