A company has income before taxes of \$120,000. Net sales are \$400,000 and gross profit is \$300,000. Operating cash inflows totaled \$360,000 and operating cash outflows totaled \$300,000. What is the cash return on assets, assuming the company has a 40% tax rate, and average total assets were \$900,000?

• A. 6.7%
• B. 11.1%
• C. 33.3%
• D. 44.4%

Answer: (A)

Verified step by step guidance

1. Calculate the net income by subtracting taxes from the income before taxes. Use the formula: Net Income = Income Before Taxes - (Income Before Taxes * Tax Rate).
2. Determine the net cash flow from operating activities by subtracting operating cash outflows from operating cash inflows.
3. Calculate the cash return on assets using the formula: Cash Return on Assets = (Net Cash Flow from Operating Activities / Average Total Assets) * 100.
4. Substitute the values into the formula: Net Cash Flow from Operating Activities = \$360,000 - \$300,000, and Average Total Assets = \$900,000.
5. Compute the percentage to find the cash return on assets, which will help you determine the correct answer from the given options.