Chapter 2: Q10BP (page 79)

Fondren Machine Tools has total assets of $3,310,000 and current assets of $879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders’ equity?

Short Answer

Expert verified

The return on the stockholder’s equity of the company is 26.93%.

Step by step solution

Fixed assets of the company

$F i x e d a s s e t s = T o t a l a s s e t - C u r r e n t a s s e t = $ 3, 310, 000 - $ 879, 000 = $ 2, 431, 000$

Sales of the company

$N e t i n c o m e = S a l e s \times P r o f i t m a r g i n = $ 8, 751, 600 \times 4.8 % = $ 420, 077$

Net income of the company

$N e t i n c o m e = S a l e s \times P r o f i t m a r g i n = $ 8, 751, 600 \times 4.8 % = $ 420, 077$

Return on stockholder’s equity

$S t o c k h o l d e r ’ s e q u i t y = T o t a l a s s e t s - T o t a l d e b t s = $ 3, 310, 000 - $ 1, 750, 000 = $ 1, 560, 000$

Return on stockholder’s equity

$R e t u r n o n s t o c k h o l d e r ’ s e q u i t y = \frac{N e t i n c o m e}{S t o c k h o l d e r ’ s e q u i t y} = \frac{$ 420, 077}{$ 1, 560, 000} = 26.93 %$

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Selling and administrative expenses	$112,000
Depreciation expenses	73,000
Sales	489,000
Interest expenses	45,000
Cost of goods sold	156,000
Taxes	47,000

Sales	\( 2790000
Cost of goods sold	1790000
Gross profits	\) 1000000
Selling and administrative expenses	302000
Operating profits	\( 698000
Interest Expense	54800
Income before tax	\) 643200
Taxes 30%	192960
Income after tax	$ 450240

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

Fondren Machine Tools has total assets of \(3,310,000 and current assets of \)879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders’ equity?

Short Answer

Step by step solution

Fixed assets of the company

Sales of the company

Net income of the company

Return on stockholder’s equity

Return on stockholder’s equity

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