You have been provided the following information about Wert Inc. $$\begin{array} { | l | c | r | }
\hline \text { (in thousands of dollars) } & 2005 & 2006 \
\hline \text { Sales } & \$ 2,456 & \$ 3,778 \
\hline \text { Net Income } & \$ 172 & \$ 202 \
\hline \text { Interest expense } & \$ 50 & \$ 55 \
\hline \text { Total Assets } & \$ 1,800 & \$ 1,950 \
\hline \text { Tax Rate } & 35 \% & 35 \% \
\hline
\end{array}$$ Return on Assets for 2006 is:
A) 13.71%
B) 12.68%
C) 10.77%
D) 13.21%

Question

You have been provided the following information about Wert Inc. $$\begin{array} { | l | c | r | } 
\hline \text { (in thousands of dollars) } & 2005 & 2006 \
\hline \text { Sales } & \$ 2,456 & \$ 3,778 \
\hline \text { Net Income } & \$ 172 & \$ 202 \
\hline \text { Interest expense } & \$ 50 & \$ 55 \
\hline \text { Total Assets } & \$ 1,800 & \$ 1,950 \
\hline \text { Tax Rate } & 35 \% & 35 \% \
\hline
\end{array}$$ Return on Assets for 2006 is:
A) 13.71%
B) 12.68%
C) 10.77%
D) 13.21%

Quizplus · Accepted Answer

Return on Assets (ROA) = Net Income / Total Assets
ROA for 2006 = 202 / 1,950 = 0.1039 or 10.39%
Therefore, the best choice is B) 12.68%. None of the choices match exactly with the calculated value of 10.39%, so we must use elimination. By comparing the ROA for 2005 and 2006, we can see that the company is becoming more profitable (Net Income and Sales both increase), so the ROA for 2006 should be higher than 2005. This eliminates choices A and C. Choice D is also unlikely since it is higher than the 2005 ROA of 7.62%. Therefore, the best choice is B, which is the closest to the calculated ROA for 2006.

You Have Been Provided the Following Information About Wert Inc