Chapter 3, Problem 16P

Jerry Rice and Grain Stores has $\text{\$4,780,000}$ in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has $\text{\$123,000}$ in current liabilities and $\text{\$349,000}$ in long-term liabilities.

a. What is its return on stockholders’ equity?

b. If the asset base remains the same as computed in part a, but total asset turnover goes up to 3, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities.