Question

Shelton, Inc., has sales of $26 million, total assets of $24.8 million, and total debt of $8.1 million. Assume the profit margin is 10 percent.

What is the company's net income? (Do not round intermediate calculations. Enter your answer in dollars not in millions, e.g., 1,234,567.) Net income $
What is the company's ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) ROA %
What is the company's ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) ROE %

Answer 1

The net income of the company is $2.6 million. The return on assets (ROA) is 10.48%, and the return on equity (ROE) is 15.57%.

Step-by-step explanation:

To calculate the net income of the company, we first calculate the profit margin by multiplying the sales revenue by the profit margin percentage. In this case, the profit margin is 10% of $26 million, which equals $2.6 million. Therefore, the net income will be $2.6 million.

To calculate the return on assets (ROA), we divide the net income by total assets and multiply the result by 100 to get the percentage. In this case, the net income is $2.6 million, and the total assets are $24.8 million. Dividing $2.6 million by $24.8 million and multiplying by 100 gives us an ROA of 10.48%.

To calculate the return on equity (ROE), we divide the net income by the total equity (total assets minus total debt) and multiply by 100. In this case, the total debt is $8.1 million, so the total equity is $24.8 million minus $8.1 million, which equals $16.7 million. Dividing $2.6 million by $16.7 million and multiplying by 100 gives us an ROE of 15.57%.