The Components of Tofield Ltd If Tofield's Corporate Tax Rate Was 25%, What Was Their

question 81

Multiple Choice

The components of Tofield Ltd.'s capital structure and their related costs are as follows: $\begin{array}{lr}\text { Current liabilities } & \$ 400,000 \\\text { Long-term liabilities } & \$ 1,000,000^{1} \\\text { Preferred shares } & \$ 250,000^{2} \\\text { Common shares } & \$ 250,000^{3}\\\text { Retained earnings } & \$ 672,500 \\\text { Net income } & \$ 112,500 \\{ }^{1} \$ 80.000 \text { interest paid } &\\{ }^{2} \$ 12,500 \text { dividends paid }\\{ }^{3} \$ 2,500 \text { dividends paid }\end{array}$ If Tofield's corporate tax rate was 25%, what was their return on assets closest to?

• A)4.4%
• B)6.7%
• C)7.5%
• D)ROA cannot be determined from the data given.

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Definitions:

Trade Credit

Debt arising from credit sales and recorded as an account receivable by the seller and as an account payable by the buyer.

Discounts

A reduction from the usual cost of something, often applied to prompt payment or to certain categories of customers.

Increase

A rise in value, quantity, or some other measure.

Trade Discount

A reduction from the list price given by a seller to a buyer, often based on the volume of the transaction or to incentivize early payment.