Reference no: EM132396730

The annual sales for? Salco, Inc. were $4.49 million last year. The? firm's end-of-year balance sheet was as? follows Current assets $507,000 Liabilities $1,002,500 Net fixed assets 1,498,000 Owners' equity 1,002,500 Total Assets $2,005,000 Total $2,005,000 

Salco's income statement for the year was as? follows

Sales $4,490,000

Less: Cost of goods sold (3,491,000)

Gross profit $999,000

Less: Operating expenses (508,000)

Net operating income $491,000

Less: Interest expense (92,000)

Earnings before taxes $399,000

Less: Taxes (35%) (139,650)

Net income $259,350

a. Calculate? Salco's total asset? turnover, operating profit? margin, and operating return on assets. Round to two decimal? places.

b. Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $1.04 million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.4 percent. What will be the new operating return on assets ratio? (i.e., net operating income divided by÷total ?assets) for Salco after the? plant's renovation?

c. Given that the plant renovation in part ?(b?) occurs and? Salco's interest expense rises by $47,000 per? year, what will be the return earned on the common? stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this? comparison, did the renovation have a favorable effect on the profitability of the? firm?