Orca Industries
Below Are the Two Most Recent Balance Sheets

question 5

Multiple Choice

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries.The company has an effective tax rate of 35%.
Balance Sheet
$\begin{array}{l}\begin{array}{lll}\\\text {Assets:}\\\text {Cash}\\\text {Accounts Receivable (net) }\\\text {Inventory}\\\text {Long-lived assets}\\\text {Less: Accumulated depreciation}\\\text {Total assets}\\\end{array}\begin{array}{lll}2011&2010\\\\\$ 10,000 & \$ 6,000 \\6,000 & 1,500 \\8,000 & 10,000 \\12,000 & 11,000 \\\underline{(4,000) } & \underline{(2,000) } \\\underline{\$ 32,000 }& \underline{\$ 26,500}\end{array}\end{array}$


$\text { Liabilities and Stockholders' Equity: }$
$\begin{array}{lrr}\text { Accounts payable } & \$ 5,000 & \$ 6,000 \\\text { Deferred revenues } & 1,000 & 2,000 \\\text { Long-term note payable } & 10,000 & 10,000 \\\text { Less: Discount on note payable } & (800) & (1,000) \\\text { Common stock } & 12,000 & 6,000 \\\text { Retained earnings } &\underline{ 4,800 }&\underline{3,500}\\\text { Total liabilities and stockholders' equity } &\underline{ \$ 32.000 }&\underline{ \$ 26,500}\\\end{array}$


Income Statement
For the year ended December 31, 2011
$$\begin{array}{l}\begin{array} { l } \text { Revenues }& \$42,000 \\\text { Cast af goods sold }&( 24,000 ) \\\text { Depreciation expense } &( 2,000 ) \\\text { Interest expense } &( 3,000 ) \\\text { Bad debt exanense }&( 2,000 ) \\\text { Other expense (including income taxes) }&\underline{(9,000) } \\\text { Net incame }&\underline{\$2,000}\end{array}\\\begin{array} { l } \end{array}\end{array}$$
-Refer to the information for Orca Industries.The profit margin for computing ROA for Orca Industries is:

• A) 9.4%
• B) 13.5%
• C) 4.8%
• D) 12.3%

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Definitions:

Financial Intermediation

The process by which financial institutions act as intermediaries between lenders and borrowers.

Institutional Investor

A business organization that buys and sells securities. Generally, a fund of some kind such as a mutual fund or a pension fund that invests the pooled money of its clients.

Pension Funds

Investment pools that collect and invest funds contributed by sponsors and beneficiaries to provide future pension benefits.

Insurance Companies

Businesses that provide protection against financial losses in exchange for regular payments from individuals or entities.