Problem

At the end of the year, the following information was obtained from the accounting records...

At the end of the year, the following information was obtained from the accounting records of Zacherv, Inc.

Sales (all on credit)

  $2,750,000

Cost of goods sold 

1,755,000

Average inventory

  375,000

Average accounts receivable

  290,000

Interest expense.      

  45,000

Income tax expense    

  84.000

Net income    

   159,000

Average investment in assets  

  1.800,000

Average stockholders’ equity     

  895.000

Instructions

a. From the information given, compute the following:

1. Inventory turnover.

2. Accounts receivable turnover.

3. Total operating expenses.

4. Gross profit percentage.

5. Return on average, stockholders’ equity.

6. Return on average assets.


b. Zachery has an opportunity to obtain a long-term loan at an annual interest rate of 12 percent and could use this additional capital at the same rate of profitability as indicated by the given data. Would obtaining the loan be desirable from the viewpoint of the stockholders? Explain.

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