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), the formula used is Net Income divided by Total Assets. In this case, Total Assets amount to $192,000 (current assets of $80,000 plus fixed assets of $112,000), and with a net income of $57,000, the ROTA is 29.70%.
A) 14.30%
This option is incorrect because it underestimates the return on total assets. A ROTA of 14.30% would suggest a much lower net income relative to total assets than what is calculated here.
B) 27.90%
This option is also incorrect as it does not accurately reflect the relationship between net income and total assets. A ROTA of 27.90% implies a slightly lower performance than what the figures indicate, which results in a miscalculation.
C) 29.70%
This option is correct. By dividing the net income of $57,000 by the total assets of $192,000, we find the return on total assets to be 29.70%. This figure accurately represents the efficiency of the firm in generating profit from its assets.
D) 32.00%
This option is incorrect because it overestimates the return on total assets. A ROTA of 32.00% would indicate a significantly higher net income relative to total assets than is present in the provided data.
Conclusion
The correct answer is 29.70% because it accurately reflects the calculation derived from the firm's net income and total assets. All other options either underestimate or overestimate the return on total assets based on the given financial information. Hence, C is the only option that aligns with the actual figures provided.