3.Santiago Company reported the following items in its financial statements:
20072008
Sales$ 937,500$1,125,000
Net income75,000135,000
Total assets3,750,0004,500,000
Required:
a.Compute asset turnover, profit margin, and return on assets for each year.
b.Explain the change in return on assets from 2007 to 2008.
4.Turetzky Corporation is considering two alternatives to improve its financial results:
1.Improve its product quality, resulting in an 8% increase in expenses and a 10% increase in sales.
2.Purchase new productive assets for $3 million. This alternative would increase sales by $4 million and increase expenses by $2,800,000.
Turetzky had the following results for 2007
Sales$18,000,000
Expenses15,100,000
Net income$ 2,900,000
Total assets$12,000,000
Required:
a.Compute profit margin, asset turnover, and return on assets for 2007.
b.Compute profit margin, asset turnover, and return on assets under alternative 1.
c.Compute profit margin, asset turnover, and return on assets under alternative 2.
d.Discuss which alternative would be preferable and why.