Question

DTO, Incorporated, has sales of $40 million, total assets of $21 million, and total debt of $8 milion. a. If the profit margin is 10 percent ,A.what is the net income? b. What is the ROA?

Answer 1

DTO, Incorporated's net income is $4 million, calculated by multiplying its sales of $40 million by the profit margin of 10%. The Return on Assets (ROA) is 19.05%, found by dividing the net income by the total assets of $21 million.

Step-by-step explanation:

DTO, Incorporated has reported sales of $40 million. With a profit margin of 10%, the net income can be calculated by multiplying the sales by the profit margin: $40,000,000 * 10% = $4,000,000. Therefore, the net income is $4 million.

Next, to calculate the Return on Assets (ROA), we divide the net income by the total assets. The ROA is calculated as follows: $4,000,000 / $21,000,000 = 0.190476, or approximately 19.05%. Therefore, the ROA for DTO, Incorporated is 19.05%.

In comparison, the self-check question from the reference material can help reinforce the concept of calculating accounting profit. The firm's accounting profit is calculated by subtracting the explicit costs from the total revenues: $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000. Not directly related to DTO's situation, but it provides a basic example of profit calculation.