Question

Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms: Sales Interest Payment Net Income Assets at Start of Year Federal Stores $100 $4 $10 $50 Sara Togas 20 1 4 20 a. Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for the two firms. (Do not round intermediate calculations. Round the sales-to-assets ratio answers to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.) Federal Stores Sara Togas Sales-to-assets ratio Operating profit margin % % Return on assets % % b. Now assume that the two companies merge. If Federal continues to sell goods worth $100 million, how will the three ratios change? (Do not round intermediate calculations. Round the sales-to-assets ratio answer to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.) Merged Firm Sales-to-assets ratio Operating profit margin % Return on assets %

Answer 1