Question

Use the information in the table below to answer the following: . Over the next year, the company expects to increase its asset turnover by 0.50 without affecting the EBI profit margin. This means the Asset Turnover will be the asset turnover calculated using the values below + 0.50. The EBI profit margin will be the EBI profit margin calculated using the values below.

If the company is successful, what will the company's ROA be next year? Answer in decimals and keep 4 decimals, for example 0.1234.

Average Assets	6,000,000
Average Debt	2,000,000
Sales	6,000,000
Net Income	167,871
Interest expense	20,000
Tax rate	27%

Answer 1

Answer: Analysis of income Statement of Current year. Particulars Net Income (Profit After tanes) Add Taxes @ 27% Profit be fore Taxes Add: Interest Expense Profit before interest and Taxes Amount 167871 62089 2,29,960 20.000 2,49,960

• Asset Turnover Rotio : Sales Average Assets 60.00, 000 G0,00, ooo 1 EBIT хоо • EBI profit Morgin [EBI means Earnings (Profit before interest and Taxes ] sales 249960 x los 60,00,000 4.166% Next year • Asset Turnover Increased by 0.5 ie. Resultant = ment 1+0.5= 1.5 ie. Sales is equivalent to los times Average Assets Soles = 1.5 X 60,00,00 Sales - 90,09000 EBI Profit Morgin Remains some in i.e. 41 66 % Therefore, EBIT sholl be 4.166% of Sales 4.166% of gooo, ow 2 374946

Income Statement of Next year PARTICULARS EBIT Less: Interest Expense СВт Less Tax Expense @ 27% Net Income CEAT) AMOUNT 3, 74, 940 _20,00 3,54,940 95 834 2,59 10 Return on Assets (Next year) = . Net Income x100 Average Total Assets 259 106 x 100 G0,00, ovo 4.3184 %