"3-6. Solution:One Size-Fits-All Casket Co.a. Profit margin for 2008Net Income $262,500 = = 8.75%Sales $3,000,000 b. Sales ..............................................................$3,300,000*Cost of goods sold ........................................2,625,000**Gross profit ...................................................675,000Selling and administrative expense ..............450,000Operating profit ............................................225,000Interest expense ............................................75,000Income before taxes .....................................150,000Taxes (30%) .................................................45,000Income after taxes (2008) .............................$105,000* $3,000,000 × 1.10 = $3,300,000** $2,100,000 × 1.25 = $2,625,000Profit Margin for 2009Net Income $105,000 = = 3.18%Sales $3,300,000 S3-10 7. Easter Egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. Itreports net income of $200,000. a. What is the firm ?s return on assets?b. What is its return on stockholders ? equity?c. If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)?3-7. Solution:Easter Egg and Poultry CompanyNet income a. Return on assets (investment) = Total assets $200,000 =10% $2,000,000 Net income b. Return on equity = Stockholders' equity Stockholders' equity = total assets - total debt = $2,000,000 - $1,400,000 = $600,000 Net income $200,000 = = 33% Stockholders' equity $600,000 OR Return on assets (investment) Return on equity = (1 - Debt/Assets) $1,400,000 Debt/Assets = = 70% $2,000,000 10% 10% Return on equity = = 33% (1 -.70) .30 S3-11 3-7. (Continued)c. Sales = total assets × total assets turnover = $2,000,000 × 2.5 = $5,000,000 Net income $200,000 Profit margin = = = 4% Sales $5,000,000 8. Sharpe Razor Company has total assets of $2,500,000 and current assets of $1,000,000. Itturns over its fixed assets 5 times a year and has $700,000 of debt. Its return on sales is 3 percent. What is Sharpe ?s return on stockholders? equity? 3-8. Solution:Sharpe Razor Company total assets $2,500,000? current assets 1,000,000Fixed assets $1,500,000Sales= Fixed assets×= Fixed asset turnover $1,500,000×= 5 $7,500,000 total assets $2,500,000?debt 700,000Stockholders ? eq $1, uity 800,000Net income = Sales × profit margin =$7,500,000 × 3% = $225,000 Net income Return on stockholders' equity = Stockholders' equity $225,000 = =12.5% $1,800,000 S3-12 9. Baker Oats had an asset turnover of 1.6 times per year. a. If the return on total assets (investment) was 11.2 percent, what was Baker ?s profitmargin? b. The following year, on the same level of assets, Baker ?s assets turnov1.4 times and its profit margin was 8 percent. How did the return on total assetschange from that of the previous year?3-9. Solution:Baker Oatsa. Total asset turnover × Profit Margin = Return on Total assets1.6 × ? = 11.2%11.2% Profit margin = =7.0%1.6 b. 1.4 × 8% = 11.2%It did not change at all because the increase in profit margin madeup for the decrease in the asset turnover.S3-13 10. Global Healthcare Products has the following ratios compared to its industry for 2008.GlobalHealthcare IndustryReturn on sales???.. 2% 10%Return on assets??? 18% 12%Explain why the return-on-assets ratio is so much more favorable than the return-on-salesratio compared to the industry. No numbers are necessary; a one-sentence answer is all thatis required.3-10. Solution:Global Healthcare ProductsGlobal Healthcare Products has a higher asset turnover ratio thanthe industry.Return on Assets =Asset TurnoverReturn on Sales 18% 12% vs2% 10% 9×× vs1.2S3-14 "