Uptowne Restaurant has sales of $418,000, total equity of $224,400, a tax rate of 34 percent, a debt-equity ratio of

Finance Aug 28, 2020

Uptowne Restaurant has sales of $418,000, total equity of $224,400, a tax rate of 34 percent, a debt-equity ratio of .37, and a profit margin of 5.1 percent. What is the return on assets?

Expert Solution

?Computation of the return on assets (ROA):-

Debt-to-equity ratio = 0.37

Debt / Equity = 0.37

Debt = 0.37 * Equity

= 0.37 * $224,400

= $83,028

Total assets = Debt + Equity

= $83,028 + $224,400

= $307,428

Net income = Sales * Profit margin

= $418,000 * 5.1%

= $21,318

ROA = Net income / Total assets

= $21,318 / $307,428

= 6.93%

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