Calculating company return on assets

Assignment Help Accounting Basics
Reference no: EM13256944

In 2001, the management committee of Lucknow Co. is considering investing \$800,000 for the purchase of machinery and equipment inorder to increase the productivity of the plant. In 2000, the company's sales revenue amounted to \$2,800,000, goodspurchased from suppliers totaled \$600,000 and income after taxes was \$280,000. The company's 2000 balance sheet is as follows:

In2001, management expects sales revenue to increase by 10% and, with cutbacks in different segments of their operations, return on salesis expected to improve to 12%. Cost of goods sold as apercentage of sales revenue is expected to show an improvement andreach 20%. Depreciation is expected to total \$100,000.

(Note: not all the information given in the problem isrequired to answer the questions for the assignment).

Questions:

1.What are the company's current assets?

2.What are the company's current liabilities?

3.What are the company's total assets?

4.What are the company's total liabilities?

5.What are the company's total liabilities and equity?

6.Calculate the company's return on assets for the year2000.

7.What is the net income after taxes for 2001?

8.Calculate the company's average daily sales in 2000?

9.Calculate the company's average collection period for2000.

10.Calculate the company's inventory turnover?

11. Management also expects improvements in the working capitalaccounts. The company's objective is to improveaccounts receivable by eight days, and turn inventory around by 0.2turns faster. a) How much cash will be generated fromaccounts receivable in 2001? b) From inventory in 2001?

12.If the cash that will be generated by internal operations in 2001is \$517, 471 then how much will management have to borrow toproceed with the \$800,000 investment? (This might be easierthan you think?)

13.Suppose that to raise the \$800,000 the company had \$150,000 inretained earnings they were willing to use. Normally theywould expect a 10% return on this money. The bank has agreedto lend them \$200,000 at an interest rate of 9%.

The remaining amount will come from a second bank loan at 14%. If the company expects to pay 30% income tax what will their after taxcost of capital be for the equipment?

Questions Cloud

 Differentiate between functional and dysfunctional conflicts : Differentiate between functional and dysfunctional conflicts. Then discuss any five (5) antecedents of conflict, and the three (3) desired outcomes conflict. What is the speed of the image of the satellite : A satellite is on a circular orbit of radius twice of that of Earth. If the Earth surface is considered to be a mirror, what is the speed of the image of the satellite Sole-proprietorship merchandizing business : You have a sole-proprietorship merchandizing business dealing with photography equipments. The business was established three years back and had an average annual turnover of \$50,000. Calculate and interpret the following rations for bestcare : Consider the following financial statements for BestCare HMO, a not profit managed care plan. Perform a DU Pont analysis on BestCare. Calculating company return on assets : Calculate the company's return on assets for the year 2000. Explain magnesium sulfate heptahydrate in water : if a solution of epsom salts prepared by dissolving magnesium sulfate heptahydrate in water is added to a solution containing sodium lauryl sulfate, will a precipitate form Contrast the mechanistic and organic approaches : Compare and contrast the mechanistic and organic approaches to organizational design. How might an employee’s experiences differ working in these two types of organizations? Find the magnetic force on segment of wire : Show that the force between parallel wires carrying currents I1 and I2, both in the same direction, find the magnetic force on segment dI2 of wire 2. What is the net advantage of leasing : The lease terms, which include maintenance, call for a \$10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 40%.

Write a Review

Company overview milestone

Find two annual reports from competing publicly traded companies of your choice. Prepare an overview of the two companies including a brief synopsis of the industry the companies are in, the market share each company holds, and the length of time ..

Multiple-step income statement of bruce van company

Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax rate and that 80,000 shares of common stock were outstanding during the year.

Balance sheet and income statement of the company

A preliminary analytical review of the company's most recent balance sheet and income statement

Capital balance after closing income summary to capital

Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are \$80,000 and \$120,000 respectively. Income Summary has a credit balance of \$40,000. What is Pia's capital balance after closing Income Summary to Capital?

What are the items that should be included as inventory

One of the most important problems in dealing with inventory is the amount at which the inventory should be carried on the books. What are the items that should be included as inventory? Remember to consider purchase returns, purchase discounts, a..

Compute the taxable income for the year

Assume the same facts except that Loon's long term capital gain is \$100,000 (instead of \$60,000). Compute the taxable income for the year.

Project operating cash flow for the first year

The company faces a 40% tax rate. What is the project's operating cash flow for the first year (t = 1)?

Total warranty liability and journalizing

Determine the year's total warranty liability and journalize any necessary value to establish the year's liability at December 31st.

Determine foreign exchange transaction

Post Inc, had a receivable from a foregn customer that is payable in customer's loca currency. On Dec 31, 2009, Post correctly included this receivable for 200,000 local currency units

Report outlining the need for regulation in accounting

Comment on the appropriateness of this viewpoint. Prepare a report outlining the need for regulation in accounting and why a free market for accounting information is not ideal.

Journal entries relative to the books of united company

United, Inc., a U.S. corporation, entered into a contract on November 1, 2007 to sell two machines to International Company, for 80,000 foreign currency units (FCU). The machines were to be delivered and the amount collected on March 1, 2008.

Determine the price to charge for inspecting

Texas has just passed a law making it mandatory to have every head of cattle inspected at least once a year for a variety of communicable diseases.