Mgmt 200 Assignment Soln 4-28-10

# Mgmt 200 Assignment Soln 4-28-10 - income will need to be...

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Management 200 – Introductory Financial Accounting – Spring 2010 Krannert School of Management - Purdue University Solutions to class assignment for April 28, 2010 Problem 13-3 Goals for Sales and Return on Assets 1. a. Return on sales = [net income + (interest expense, net of tax)]/net sales = \$5,000,000/\$60,000,000 = 8.33 % b. Asset turnover = net sales/average total assets = \$60,000,000/\$40,000,000 = 1.5 times c. Return on assets = return on sales X asset turnover = 8.33% X 1.5 = 12.5 % 2. Asset turnover = (\$60,000,000 X 120%) / (\$40,000,000 X 112.5%) = \$72,000,000/\$45,000,000 = 1.6 times 3. If average total assets are \$45,000,000 and the goal is a 15% return on assets, net
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Unformatted text preview: income will need to be 15% of \$45,000,000, or \$6,750,000 . 4. Income will have to increase by 35%, (\$6,750,000 \$5,000,000)/\$5,000,000, to achieve the goal of a 15% return on assets. The president has set a goal for an increase in sales of only 20%. To increase income by a larger percentage than the increase in sales will require cost-cutting in the various departments of the business. The company may want to look for cheaper sources of supply for its materials, as long as the quality of the product is maintained. Efforts will need to be made to cut selling, general, and administrative expenses as well....
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## This note was uploaded on 05/25/2010 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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