9.Zypher Corporation is considering two alternatives to improve its financial results:
a.Improve its product quality, resulting in a 7% increase in expenses and a 9% increase in sales.
b.Purchase new productive assets for $2 million. This alternative would increase sales by $3.6 million and increase expenses by $2,560,000.
Zypher had the following results for 2007:
Sales$16,000,000
Expenses14,800,000
Net income$ 1,200,000
Total assets$10,000,000
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 alternative 2.
d.Discuss which alternative would be preferable and why.
10.Information is provided below for two companies for 2007
CorellePadron
Total assets$160,000$300,000
Sales140,000540,000
Fixed costs70,000378,000
Other expenses*42,000108,000
Net income$28,000$54,000
* Vary in proportion to sales
Required:
a.Compute profit margin, asset turnover, and return on assets.
b.Compute profit margin, asset turnover, and return on assets for both firms if sales increased by 10%.
c.Compute profit margin, asset turnover, and return on assets for both firms if sales decreased by 10%.