40. Given the information provided, what is the firm's return on total assets? Current assets $80,000 | Fixed $112,000 | Inventory included in assets $12,000 | Current liabilities $30,000 | Long term liabilities $86,000 | Net income $57,000
Answer: C
The firm's return on total assets is 29.70%.
To calculate the return on total assets (ROTA), we use the formula: ROTA = (Net Income / Total Assets) × 100. In this case, the total assets amount to $192,000 ($80,000 in current assets plus $112,000 in fixed assets), leading to a ROTA of 29.70% when we input the net income of $57,000.
A) 14.30%
Option A is incorrect because a return on total assets of 14.30% would imply a significantly lower net income relative to the total assets. Given the net income of $57,000 and total assets of $192,000, this percentage does not match the calculated ROTA.
B) 27.90%
Option B is also incorrect. A ROTA of 27.90% suggests a different relationship between net income and total assets than what is derived from the provided figures. The calculation clearly indicates that the return is higher than 27.90%.
C) 29.70%
Option C is correct. The return on total assets is calculated as (57,000 / 192,000) × 100, which equals 29.70%. This accurately reflects the firm's efficiency in generating profit from its total assets.
D) 32.00%
Option D is incorrect. A return on total assets of 32.00% would indicate a higher net income relative to the total assets than what is actually reported. The calculation of $57,000 net income over $192,000 total assets clearly results in a lower percentage.
Conclusion
The correct answer, 29.70%, accurately represents the firm's ability to generate profit from its total assets based on the provided financial figures. All other options fail to reflect the correct relationship between net income and total assets as established by the calculations.