Question

# East Point Retail, Inc. sells apparel through company-owned retail stores. Recent financial information for East Point...

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 %

 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

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