Brandon Company's net income last year was $65,000 and its interest expense was $20,000. Total assets at the beginning of the year were $640,000 and total assets at the end of the year were $690,000. The company's income tax rate was 30%. The company's return on total assets for the year was closest to

Question

Business

Zane Yates

6 January, 04:59

Brandon Company's net income last year was $65,000 and its interest expense was $20,000. Total assets at the beginning of the year were $640,000 and total assets at the end of the year were $690,000. The company's income tax rate was 30%. The company's return on total assets for the year was closest to

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Kimberly Leblanc · Answer 1

11.9%

Explanation:

Data provided in the question:

Company's net income last year = $65,000

Interest expense = $20,000

Beginning assets = $640,000

Ending assets = $690,000

Now,

Average total assets = [ Beginning assets + Ending assets] : 2

= [ $640,000 + $690,000 ] : 2

= $665,000

Adjusted net income = Net income + [ Interest expense * (1 - Tax rate) ]

= $65,000 + [ $20,000 * (1 - 0.30) ]

= $79,000

Return on total assets = (Adjusted net income) : (Average total assets)

= $79,000 : $665,000

= 0.1188

or

= 0.1188 * 100%

= 11.88% ≈ 11.9%