Anderson Supplies, Inc., has sales of $8 million, a total asset turnover ratio of 5 for the year, and net profits of $200,000. (a) What is the company's return on assets (ROA) or earning power? (b) The company is considering implementing an advanced inventory management system, which is expected to increase asset investment by 25 percent. This system is projected to improve the net profit margin from 2.5% to 3.5%, with no change in sales. What is the effect of the new system on the return on assets (ROA)?
Anderson Supplies, Inc., has sales of $8 million, a total asset turnover ratio of 5 for the year, and net profits of $200,000. (a) What is the company's return on assets (ROA) or earning power? (b) The company is considering implementing an advanced inventory management system, which is expected to increase asset investment by 25 percent. This system is projected to improve the net profit margin from 2.5% to 3.5%, with no change in sales. What is the effect of the new system on the return on assets (ROA)?
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 4P
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Can you please answer this financial accounting question?

Transcribed Image Text:Anderson Supplies, Inc., has sales of $8 million, a total asset
turnover ratio of 5 for the year, and net profits of $200,000.
(a) What is the company's return on assets (ROA) or earning
power?
(b) The company is considering implementing an advanced
inventory management system, which is expected to increase asset
investment by 25 percent. This system is projected to improve the
net profit margin from 2.5% to 3.5%, with no change in sales. What
is the effect of the new system on the return on assets (ROA)?
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