Final answer:
The total asset turnover and equity multiplier for Henderson's Hardware can be calculated using the given information. The correct values are Total Asset Turnover: 1.83 and Equity Multiplier: 1.26.
Step-by-step explanation:
The Total Asset Turnover can be calculated using the formula: Total Asset Turnover = Net Sales / Average Total Assets. Since the Net Margin is given as 6%, we can calculate Net Sales by dividing the Net Income by the Net Margin. The Equity Multiplier can be calculated using the formula: Equity Multiplier = Total Assets / Total Equity. We can rearrange the formula to solve for Total Assets: Total Assets = Equity Multiplier * Total Equity. Substituting the given values, we can calculate the Total Asset Turnover and the Equity Multiplier as follows:
Total Asset Turnover = Net Sales / Average Total Assets = (Net Income / Net Margin) / Average Total Assets = (Net Income / 0.06) / Average Total Assets = 11% / Average Total Assets
Equity Multiplier = Total Assets / Total Equity = (11% / Average Total Assets) / 0.23 = 1 / 0.23 = 4.35
Given that the ROA is 11% and the Equity Multiplier is 4.35, we can substitute these values into the formula for the ROE (ROE = ROA * Equity Multiplier) to solve for the ROE:
23% = 11% * 4.35
From this, we can calculate the Average Total Assets:
11% / Average Total Assets = 23% / 4.35 ⟹ Average Total Assets = (11% * 4.35) / 23% = 2.08
Finally, we can substitute the Average Total Assets into the formula for Total Asset Turnover to calculate its value:
Total Asset Turnover = 11% / Average Total Assets = 11% / 2.08 = 1.83
Therefore, the correct answer is A) Total Asset Turnover: 1.83, Equity Multiplier: 1.26.