Question

East Point Retail, Inc. sells apparel through company-owned retail stores. Recent financial information for East Point follows (in thousands):

	Fiscal Year 3		Fiscal Year 2
Net income	$157,300		$81,000
Interest expense	3,200		12,100
	Fiscal Year 3		Fiscal Year 2		Fiscal Year 1
Total assets (at end of fiscal year)	$2,082,437		$1,980,855		$1,743,145
Total stockholders' equity (at end of fiscal year)	1,185,620		1,162,142		862,858

Assume the apparel industry average return on total assets is 5.0% and the average return on stockholders' equity is 8.0% for the year ended February 2, Year 3.

a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round percentages to one decimal place.

Fiscal Year 3	%
Fiscal Year 2	%

b. Determine the return on stockholders’ equity for East Point for fiscal Years 2 and 3. Round percentages to one decimal place.

Fiscal Year 3	%
Fiscal Year 2	%

Answer 1

Ans. A	Return on total assets =   (Net income + Interest expenses) / Average assets * 100
	Fiscal year 3	($157,300 + $3,200) / $2,031,646 * 100	7.9%
	Fiscal year 2	($81,000 + $12,100) / $1,862,000 * 100	5.0%
	*Average assets = (Beginning assets + Ending assets) / 2
	Fiscal year 3	(1,980,855 + $2,082,437) / 2	$2,031,646
	Fiscal year 2	($1,743,145 + 1,980,855) / 2	$1,862,000
Ans. B	Return on stockholder's equity =   Net income / Average equity * 100
	Fiscal year 3	$157,300 / $1,173,881 * 100	13.4%
	Fiscal year 2	$81,000 / $1,012,500 * 100	8.0%
	*Average equity = (Beginning equity + Ending equity) / 2
	Fiscal year 3	($1,162,142 + $1,185,620) / 2	$1,173,881
	Fiscal year 2	($862,858 + $1,162,142) / 2	$1,012,500