Question

Database Systems is considering expansion into a new product line. Assets to support expansion will cost $380,000. It is estimated that Database can generate $1,410,000 in annual sales, with a 8 percent profit margin. What would net income and return on assets (investment) be for the year?

Answer 1

Answer:

Net income = $112,800

ROA = 29.68%

Explanation:

Net income for the year would be the profit margin generated by the database multiplied by the sales volume

$N= 0.08*\ 1,410,000\\N=\ 112,800$

The return on assets (ROA) is given by the net income divided by total assets (expansion cost investment):

$ROA = \frac{\ 112,800}{\ 380,000}\\ ROA =0.2968=29.68\%$

Database Systems' net income is $112,800 and its ROA is 29.68%.