Red SparkIncorporated is interested in assessing the following scenarios on its indicators of profitability. Solve each scenario independently.a.Red Sparkhas taken significant steps to decrease expenses and expects its net income to increase by$8 million to $68 million. If its profit margin is 5.0%, what will the profit margin be after considering the decreased expenses?b.Red Spark has taken significant steps to decrease expenses and expects its net income to increase by $8 million to $68 million. If its average total assets are $494 million, what will its return on assets be?

Answered: Red Spark Incorporated is interested in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Red Spark

Incorporated is interested in assessing the following scenarios on its indicators of profitability. Solve each scenario independently.

a.	Red Spark has taken significant steps to decrease expenses and expects its net income to increase by $8 million to $68 million. If its profit margin is 5.0%, what will the profit margin be after considering the decreased expenses?
b.	Red Spark has taken significant steps to decrease expenses and expects its net income to increase by $8 million to $68 million. If its average total assets are $494 million, what will its return on assets be?

Expert Solution

Step 1

The return on assets indicates the profitability of the company. It is the comparison of the net income with the average total assets. The return on assets is considered good if it is higher.