The annual sales for Saudi Aramco Corporation were $4.7 million last year. All sales are on credit.

The firm’s end-of-year balance sheet was as follows:

The firm’s income statement for the year was as follows:

a. Calculate Saudi Aramco’s total asset turnover, operating profit margin, and operating return on assets.

b. Saudi Aramco plans to renovate one of its plants, which will require an added investment in plant and equipment of $1.2 million. The firm will maintain its present debt ratio of 0.57 when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13 percent. What will be the new operating return on assets for Saudi Aramco after the plant’s renovation?

c. Given that the plant renovation in part (b) occurs and Saudi Aramco’s interest expense rises by $54,000 per year, what will be the return earned on the common stockholders’ investment? Compare this rate of return with that earned before the renovation.

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Current $520,000 Liabilities $ assets 1,200,000 Net fixed 1.600.000 Owners' 920,000 assets equity S 2,120,000 GA|| 2,120,000