Use the information in E13-3 to complete the following requirements.

Required:

1. Compute the gross profit percentage for each year (rounded to one decimal place). Assuming that the change from 2015 to 2016 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2017?
2. Compute the net profit margin for each year (expressed as a percentage with one decimal place). Given your calculations here and in requirement 1, explain whether Computer Tycoon did a better or worse job of controlling operating expenses in 2016 relative to 2015.

3. Computer Tycoon reported average net fixed assets of $54,200 in 2016 and $45,100 in 2015. Compute the fixed asset turnover ratios for both years (round to two decimal places). Did the company better utilize its investment in fixed assets to generate revenues in 2016 or 2015?

4. Computer Tycoon reported average stockholders’ equity of $54,000 in 2016 and $40,800 in 2015. The company has not issued preferred stock. Compute the return on equity ratios for both years (expressed as a percentage with one decimal place). Did the company generate greater returns for stockholders in 2016 than in 2015?

Data From E13-3

According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.

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2016 2015 $100,000 60,000 $120,000 71,500 Sales Revenue Cost of Goods Sold Gross Profit 40,000 48,500 Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense 36,000 37,000 500 475 3,500 11,025 1,000 5,000 Net Income $ 2,500 $ 6,025