Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc.,a manufacturer of small electronic devices,including calculators,personal digital assistants and mp3 players.For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS
Refer to the information for Net Devices Inc.What is the profit margin for ROA for Net Devices for 2010?
A) 7.26%
B) 4.22%
C) 5.00%
D) 3.97%

Question

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc.,a manufacturer of small electronic devices,including calculators,personal digital assistants and mp3 players.For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS
   Refer to the information for Net Devices Inc.What is the profit margin for ROA for Net Devices for 2010?
A) 7.26% 
B) 4.22% 
C) 5.00% 
D) 3.97%

Quizplus · Accepted Answer

To calculate the profit margin for ROA, we need to first calculate the return on assets (ROA) which is:

ROA = Net Income / Total Assets

From the balance sheet provided for 2010, we can see that Total Assets = $27,432 and from the income statement, we can see that Net Income = $1,169.

Therefore, ROA = 1,169 / 27,432 = 0.0426 or 4.26%

Now, to calculate the profit margin for ROA, we need to multiply ROA by (1 - tax rate):

Profit Margin for ROA = ROA x (1 - Tax Rate)

Profit Margin for ROA = 0.0426 x (1 - 0.35) = 0.0277 or 2.77%

Therefore, the correct answer is B) 4.22%.