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Database Systems is considering expansion into a new product line. Assets to support expansion will cost $500,000. It is estimated that Database can generate $1,200,000 in annual sales, with a 6 percent profit margin. What would net income and return on assets (investment) be for the year

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Answer:

Net income for the year: $72,000

Return on assets (investment) for the year: 14.40%

Explanation:

Database can generate $1,200,000 in annual sales, with a 6 percent profit margin.

Net income = Sales x Profit margin = $1,200,000 x 6% = $72,000

Return on assets (investment) is calculated by using following formula:

Return on assets (investment) = Net income/Assets (investment)

Assets to support expansion will cost $500,000.

Return on assets (investment) = ($72,000/$500,000) x 100% = 14.40%

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