Following are selected financial data in thousands of dollars for the Hunter Corporation. 2012 2011 Current assets $ 500 $400 Fixed assets, net 700 600 Total assets 1,200 1,000 Current liabilities 300 200 Long-term debt 200 200 Common equity 700 600 Total liabilities and equity $1,200 $1,000 Net sales $1,500 $1,200 Total expenses −1,390 −1,100 Net income 110 100. a. Calculate Hunter’s rate of return on total assets in 2012 and in 2011. Did the ratio improve or worsen? b. Diagram the expanded Du Pont system for Hunter for 2012. Insert the appropriate dollar amounts wherever possible. c. Use the Du Pont system to calculate the return on assets for the two years, and determine why they changed.

a. To calculate Hunter's rate of return on total assets, we can use the formula:

Rate of Return on Total Assets = (Net Income / Total Assets) x 100

In 2012:
Rate of Return on Total Assets = (110 / 1,200) x 100 = 9.17%

In 2011:
Rate of Return on Total Assets = (100 / 1,000) x 100 = 10%

Comparing the ratios, we can see that the rate of return on total assets worsened from 10% in 2011 to 9.17% in 2012.

b. The expanded Du Pont system breaks down the return on assets (ROA) into three components: profit margin, total assets turnover, and financial leverage.

Profit Margin = (Net Income / Net Sales) x 100
Total Assets Turnover = (Net Sales / Total Assets)
Financial Leverage = (Total Assets / Common Equity)

Using the given data, we can calculate the expanded Du Pont system components for Hunter in 2012:
Profit Margin = (110 / 1,500) x 100 = 7.33%
Total Assets Turnover = (1,500 / 1,200) = 1.25
Financial Leverage = (1,200 / 700) = 1.71

c. To calculate the return on assets using the Du Pont system, we can multiply the three components:

ROA = Profit Margin x Total Assets Turnover x Financial Leverage

For 2012:
ROA = 7.33% x 1.25 x 1.71 = 14.21%

For 2011:
ROA = 100 / 1,000 = 10%

Comparing the ROA for the two years, we can see that the ROA improved from 10% in 2011 to 14.21% in 2012.

The change in ROA can be attributed to changes in the three components of the Du Pont system. Specifically, the profit margin increased from 7% in 2011 to 7.33% in 2012, the total assets turnover increased from 1.2 in 2011 to 1.25 in 2012, and the financial leverage increased from 1.43 in 2011 to 1.71 in 2012. These improvements in efficiency and leverage contributed to the increase in ROA.