Question

Return on assets can be computed as

		Net income divided by average equity
		Net income divided by sales
		The profit margin ratio times the asset turnover ratio
		The profit margin ratio times the return on equity ratio

When changing the basic EPS to the fully diluted EPS for convertible preferred stock

		subtract preferred stock dividends in the numerator
		do not subtract preferred stock dividends in the numerator
		the number of shares of preferred stock outstanding are added to the denominator
		the numerator remains the same as for the basic EPS

Answer 1

1

Return on assets can be computed as The profit margin ratio times the asset turnover ratio

Return on assets = Net income / Total Assets

Profit margin ratio = Net income/Sales

Asset turnover ratio = Sales / Total Assets

Profit margin ratio X Asset turnover ratio = Net income/Sales X Sales / Total Assets = Net income / Total Assets

Option C is correct

2

do not subtract preferred stock dividends in the numerator

The number of common shares into which preferred stock outstanding are convertible are added to the denominator.

Option B is correct