A company has annual sales of $500,000, total debt of $150,000, total equity of $150,000, and a profit margin of 7% percent

Finance May 07, 2021

A company has annual sales of $500,000, total debt of $150,000, total equity of $150,000, and a profit margin of 7% percent. What is the return on assets?
Multiple Choice
a) 7.3%

b) 11.7%

c) 5.2%

d) 15.3%

Expert Solution

Computation of the return on assets (ROA):-

Profit margin = Net income / sales

7% = Net income / $500,000

Net income = $500,000 * 7%

= $35,000

Total assets = Total debt + Total equity

= $150,000 + $150,000

= $300,000

Return on assets = Net income / Total assets

= $35,000 / $300,000

= 11.7%

Hence, the correct option is b) 11.7%

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