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

Net income = $112,800

ROA = 29.68%

Step-by-step 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 = (\$112,800)/(\$380,000)\\ ROA =0.2968=29.68\%`

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