Question

Brandon Company's net income last year was $65,000 and its interest expense was $20,000. Total assets at the beginning of the year were $640,000 and total assets at the end of the year were $690,000. The company's income tax rate was 30%. The company's return on total assets for the year was closest to

Answer 1

11.9%

Step-by-step explanation:

Data provided in the question:

Company's net income last year = $65,000

Interest expense = $20,000

Beginning assets = $640,000

Ending assets = $690,000

Now,

Average total assets = [ Beginning assets + Ending assets] ÷ 2

= [ $640,000 + $690,000 ] ÷ 2

= $665,000

Adjusted net income = Net income + [ Interest expense × (1 -Tax rate) ]

= $65,000 + [ $20,000 × (1 - 0.30) ]

= $79,000

Return on total assets = ( Adjusted net income ) ÷ ( Average total assets )

= $79,000 ÷ $665,000

= 0.1188

or

= 0.1188 × 100%

= 11.88% ≈ 11.9%