"11. Acme Transportation Company has the following ratios compared to its industry for 2009.AcmeTransportation IndustryReturn on assets????? 9%6%Return on equity????? 12% 24%Explain why the return-on-equity ratio is so much less favorable than the return-on-assetsratio compared to the industry. No numbers are necessary; a one-sentence answer is all thatis required.3-11. Solution:Acme Transportation CompanyAcme Transportation has a lower debt/total assets ratio than the industry.For those who did a calculation, Acme ? es debt to assets wer 25% vs 75% for the industry.S3-15 12. Gates Appliances has a return-on-assets (investment) ratio of 8 percent. a. If the debt-to-total-assets ratio is 40 percent, what is the return on equity? b. If the firm had no debt, what would the return-on-equity ratio be?3-12. Solution:Gates AppliancesReturn on assets (investment) Return on equity = a.(1 - Debt/Assets) 8% = (1 - 0.40) 8% = 0.60 =13.33% b. The same as return on assets (8%).S3-16 13. Using the Du Pont method, evaluate the effects of the following relationships for theButters Corporation.a. Butters Corporation has a profit margin of 7 percent and its return on assets(investment) is 25.2 percent. What is its assets turnover?b. If the Butters Corporation has a debt-to-total-assets ratio of 50 percent, what would thefirm ?s return on equity be? c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 35 percent?3-13. Solution:Butters Corporationa.Profit margin×= Total asset turnover Return on asset (investment) 7%×= ? 25.2% 25.2% Total asset turnover = 7% = 3.6x Return on assets (investment) Return on equity = b.(1 - Debt/Assets) 25.2% = (1 - 0.50) 25.2% = 0.50 = 50.40% S3-17 3-13. (Continued)Return on assets (investment) Return on equity = c.(1 - Debt/Assets) 25.2% = (1 -.35) 25.2% = 0.65 = 38.77% S3-18 14. Jerry Rice and Grain Stores has $4,000,000 in yearly sales. The firm earns 3.5 percent oneach dollar of sales and turns over its assets 2.5 times per year. It has $100,000 in currentliabilities and $300,000 in long-term liabilities.a. What is its return on stockholders ? equity? b. If the asset base remains the same as computed in part a, but total asset turnover goesup to 3, what will be the new return on stockholders ? equity? Assum margin stays the same as do current and long-term liabilities.3-14. Solution:Jerry Rice and Grain Storesa. Net income = Sales × profit margin = $4,000,000 ×3.5% = $140,000 Stockholders equity = Total assets - Total liabilities Total assets = Sales/Total asset turnover = $4,000,000/2.5 = $1,600,000 Total liabilities = Current liabilities+- Long term liabilities = $100,000 + $300,000 = $400,000 Stockholders' equity= $1,600,000-= $400,000 $1,200,000Net income Return on stockholders' equity = Stockholders' equity $140,000 = =11.67% $1,200,000 S3-19 "