Green Yard Care has net income of $62,300, a tax rate of 21 percent, and a profit margin of 6.7 percent. Total assets are $1,100,500 and current assets are $328,200. How many dollars of sales are being generated from every dollar of net fixed assets?
A) $2.83
B) $1.37
C) $.84
D) $1.20
E) $1.23

Question

Quizplus · Accepted Answer

The formula for sales to net fixed assets ratio is:

Sales/Net Fixed Assets

We need to calculate net fixed assets first:

Net Fixed Assets = Total Assets - Current Assets

Net Fixed Assets = $1,100,500 - $328,200 = $772,300

Now we can calculate the sales to net fixed assets ratio:

Sales/Net Fixed Assets = Profit Margin x Sales/Total Assets x Total Assets/Net Fixed Assets

Profit Margin = 6.7% = 0.067 
Tax Rate = 21% = 0.21

Sales/Net Fixed Assets = 0.067 x Sales/$1,100,500 x $1,100,500/$772,300

Sales/Net Fixed Assets = 0.168 x 1.425

Sales/Net Fixed Assets = 0.2397

Sales/Net Fixed Assets = $1 / 0.2397

Sales/Net Fixed Assets = $4.17

This means, for every $1 of net fixed assets, the company is generating $4.17 in sales.

Therefore, the closest answer choice is D) $1.20, which is the reciprocal of $0.833 (rounded to two decimal places).

Green Yard Care Has Net Income of $62,300, a Tax