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28 November, 11:44

Keys industries has assets of $2,100, sales of $2,960, operating costs of $2,675, and $250 of total current liabilities consisting of $200 of accruals and $50 of notes payable. Its long-term debt is $850, its common equity is $1,000, its interest charges are $125, and its tax rate is 40%. What is keys' return on total assets, roa?

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  1. 28 November, 12:31
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    Calculation of Return on Total Assets:

    Return on Total assets can be calculated using the following formula:

    Return on Total Assets = Net Income / Total Assets

    We can calculate Net income as follows:

    Sales $2960

    Less: Operating Costs $2675

    Less: Interest charges $125

    Income before tax = 160

    Less: Tax (160*40%) = 64

    Net Income = $96

    Hence, Return on Total Assets = 96/2100 = 0.0457 = 4.57%
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