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Chapter 2: 30BP_f (page 85)

Omni Technology Holding Company has the following three affiliates:

Software

Personal Computers

Foreign Operations

Sales

\(40,200,000

\)60,080,000

$100,680,000

Net Income (after tax)

2,086,000

2,880,000

8,510,000

Assets

5,820,000

25,790,000

60,630,000

Stockholder’s equity

4,090,000

10,170,000

50,950,000

f. Returning to question b, explain why the software affiliate has the highest return on total assets.

Short Answer

Expert verified

The software affiliate has the highest return on total assets. It is so because the software earns a high return with fewer assets. The total assets of the software are much lower in comparison to the personal computer and foreign operations.

Step by step solution

01

Return on total assets

Return on assets of the company is computed by dividing the net income with the total assets of the company.

02

Comparison of return on total assets

Name of Affiliates

Return on total assets

Software

35.84%

Personal computers

11.17%

Foreign operations

14.04%

The software affiliate has the highest return on total asset because of the high difference in the value of the total assets and low difference in net income of the affiliates.

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