Question

Calculate the pretax income and the return on investment for a company with the sales and...

Calculate the pretax income and the return on investment for a company with the sales and expenses as follows:

Sales $40,000,000

Cost of goods sold $25,000,000

Selling and administrative expense $5,000,000

Interest expense $1,000,000

Income taxes $5,850,000

Shareholders’ equity $800,000

Comment on the company’s profitability.

Homework Answers

Answer #1

1.

Sales $ 40,000,000
Less; Cost of goods sold $ 25,000,000
Less: Selling and administrative expenses $    5,000,000
Less: Interest expenses $    1,000,000
Pretax income $    9,000,000

2.

Pretax income $    9,000,000
Income tax expenses $    5,850,000
Net income $    3,150,000

Return on investment = Net income / Shareholders equity

Return on investment = $3,150,000 / $800,000

Return on investment = 393.75%

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