Shelton, Inc., has sales of $12 million, total assets of $9.9 million, and total

Question

Shelton, Inc., has sales of $12 million, total assets of $9.9 million, and total debt of $7.9 million. Assume the profit margin is 6 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

Net Income = Profit Margin expressed in dollars

= 6% of total sales = 0.06 * $12 million

= $ 720,000

RoA = Net Income / Total Assets

So, RoA = $ 720,000 / $ 9.9 million = 0.07272 = 7.27 %

RoE = Net Income / Total Equity

Total Equity = Total Assets - Total Debt

= $ 9.9 million - $ 7.9 million = $ 2 million

So, RoE = $ 720,000 / $ 2 million = 36 %

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