You have the following data for the Fosberg Winery of St Catherines. What is Fosberg's return on assets (ROA)? Return on equity = 15%; Earnings before taxes = $30,000; Total asset turnover = 0.80; Profit margin = 4.5%; Tax rate = 35%.
A) 3.6%
B) 3.9%
C) 5.7%
D) 6.4%
E) 9.3%

Question

Quizplus · Accepted Answer

ROA is calculated as (Net Income / Total Assets). First, find Net Income: Earnings before taxes = $30,000, Tax rate = 35%, so Net Income = $30,000 * (1 - 0.35) = $19,500. Total Assets can be found using Total Asset Turnover = 0.80, which implies Total Assets = Sales / 0.80. Sales can be found using Profit Margin = 4.5%, so Sales = Net Income / Profit Margin = $19,500 / 0.045 = $433,333.33. Therefore, Total Assets = $433,333.33 / 0.80 = $541,666.67. Finally, ROA = $19,500 / $541,666.67 = 3.6%.

You Have the Following Data for the Fosberg Winery of St