In the most recent year, Byron Bay Events financial statements reported net profit of $70,000 after deducting interest expense of $20,000 and income tax of $30,000. The company liabilities are $400,000 and its owner's equity is $800,000. What is the hotel's return on total assets, before interest and tax?

Question

Quizplus · Accepted Answer

The return on total assets before interest and tax (EBIT) is calculated by adding back the interest expense to the net profit, then dividing by the total assets (liabilities + owner's equity) and multiplying by 100 to get a percentage. EBIT = $70,000 (net profit) + $20,000 (interest expense) = $90,000. Total assets = $400,000 (liabilities) + $800,000 (owner's equity) = $1,200,000. Return on total assets = ($90,000 / $1,200,000) * 100 = 7.5%. However, this calculation result does not match any of the provided options correctly based on the initial explanation, indicating a mistake in the calculation explanation. Correctly recalculating: Return on total assets = ($90,000 / $1,200,000) * 100 = 7.5%. The correct calculation should have been: EBIT = $70,000 + $20,000 + $30,000 = $120,000. Return on total assets = ($120,000 / $1,200,000) * 100 = 10%.

In the Most Recent Year, Byron Bay Events Financial Statements