Question

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Use this information to answer the question that follow. Assets Cash and short-term investments $36,668 Accounts receivable (net) 26,207 Inventory 28,785 Property, plant, and equipment 284,709 Total assets $376,369 Liabilities and Stockholders' Equity Current liabilities $64,195 Long-term liabilities 91,389 Stockholders' equity—Common 220,785 Total liabilities and stockholders' equity $376,369 Income Statement Net Sales $92,316 Cost of goods sold (36,926) Gross margin 55,390 Operating expenses (29,343) Interest expense (4,616) Net income $21,431 Number of shares of common stock outstanding 6,272 Market price of common stock $33 Total dividends paid $8,100 Cash provided by operations $36,668 Using the data provided for Diane Company, what is the return on total assets? a. 8.9% b. 6.9% c. 8.1% d. 6.5%

Answer 1

Return on total assets = Earnings before interest and taxes / Average total assets

= (Net income + Interest expense) / Average total assets

= ($21,431 + $4,616) / $376,369

= 6.9%

The answer is b.