Database Systems is considering expansion into a new product

Database Systems is considering expansion into a new product line. Assets to support expansion will cost $500,000. It is estimated that Database Systems can generate $2,140,000 in annual sales, with an 7 percent profit margin.

What would net income and return on assets (investment) be for the year? (Input your return on assets answer as a percent rounded to 2 decimal places.)

Net Income

Return on assets

Solution

Net Income = Annual Sales X Profit Margin %

= $ 2,140,000 X 7 %

= $ 149,800

Return On assets = Net Income / Assets X 100

= $ 149,800 / $ 500,000 X 100

= 29.96 %