Shelton, Inc., has sales of $26 million, total assets of $24.8 million, and tota

Question

Shelton, Inc., has sales of $26 million, total assets of $24.8 million, and total debt of $8.1 million. Assume the profit margin is 10 percent.

What is the company's net income? (Do not round intermediate calculations. Enter your answer in dollars not in millions, e.g., 1,234,567.) Net income $

What is the company's ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) ROA %

What is the company's ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) ROE %

Explanation / Answer

1) Net Income = Sales * Profit Margin = 26,000,000*0.10 = $2,600,000

2) ROA = Net Income/Total Assets = 2,600,000/24800000 = 10.48%

3) ROE = Net Income/Equity.

Equity = Total assets - Total debt = 24800000 - 8100000 = 16700000

ROE = 2,600,000/16700000 = 15.57%

Alternatively, ROA*Equity Multiplier = 10.48*24800000/16700000 = 15.56%

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