Database Systems is considering expansion into a new product line. Assets to support expansion will cost $380,000. It is estimated that Database can generate $1,390,000 in annual sales, with an 6 percent profit margin.

Required:

What would net income and return on assets (investment) be for the year?

Net income = $83,400

Return on assets (investment) = 21.95%

Explanation:

We know,

Net income = Net sales * profit margin

Given,

Net sales = $1,390,000

profit margin = $380,000

Putting the values into the formula, we can get

Net income = Net sales * profit margin

Net income = $1,390,000 * 6%

Net income = $83,400

Again,

We know,

Return on assets (investment) = Net income : Total asset (investment)

Given,

Total asset (investment) = $380,000

Net income = $83,400

Putting the values into the formula, we can get

Return on assets (investment) = $83,400 : $380,000

Return on assets (investment) = 0.2195

Return on assets (investment) = 21.95%