Kenneth Washburn, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” he moaned. Washburn is evaluated on the basis of ROI. Selected figures for the past nine months follow. Sales $ 4,800,000 Operating income 360,000 Invested capital 6,000,000 ________________________________________ In an effort to make something out of nothing and to salvage the current year’s performance, Washburn was contemplating implementation of some or all of the following four strategies: a. Write off and discard $60,000 of obsolete inventory. The company will take a loss on the disposal. b. Accelerate the collection of $80,000 of overdue customer accounts receivable. c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the division $150,000 of expenses and will conserve cash resources. d. Acquire two competitors that are expected to have the following financial characteristics: Projected Sales Projected Operating Expenses Projected Invested Capital Anderson Manufacturing $ 3,000,000 $ 2,400,000 $ 5,000,000 Palm Beach Enterprises 4,500,000 4,120,000 4,750,000 Required: 1-a. Briefly define sales margin, capital turnover, and return on investment. Sales margin Income divided by sales revenue Capital turnover Sales revenue divided by invested capital Return on investment Income divided by invested capital ________________________________________ 1-b. Compute sales margin, capital turnover, and return on investment for the Hardware Division over the past nine months. (Omit the "%" sign in your response. Round your answers to 2 decimal places.) Sales margin 7.5 % Capital turnover 80 % Return on investment 6 % 3. Are there possible long-term problems associated with strategy (c)? Yes 4-a. Determine the ROI of the investment in Anderson Manufacturing and do the same for the investment in Palm Beach Enterprises. (Omit the "%" sign in your response.) Anderson Manufacturing ROI 12 % Palm Beach Enterprises ROI 8 % ________________________________________ 4-b. Should Washburn reject both acquisitions, accept both the acquisitions, acquire Anderson Manufacturing or acquire Palm Beach Enterprises in order to maximize the ROI? Acquire Anderson Manufacturing

Kenneth Washburn, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” he moaned. Washburn is evaluated on the basis of ROI. Selected figures for the past nine months follow.

Sales	$	4,800,000
Operating income		360,000
Invested capital		6,000,000

In an effort to make something out of nothing and to salvage the current year’s performance, Washburn was contemplating implementation of some or all of the following four strategies:

a.	Write off and discard $60,000 of obsolete inventory. The company will take a loss on the disposal.
b.	Accelerate the collection of $80,000 of overdue customer accounts receivable.
c.	Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the division $150,000 of expenses and will conserve cash resources.
d.	Acquire two competitors that are expected to have the following financial characteristics:

		Projected Sales			Projected Operating Expenses			Projected Invested Capital
Anderson Manufacturing		$	3,000,000		$	2,400,000		$	5,000,000
Palm Beach Enterprises			4,500,000			4,120,000			4,750,000
Required:
1-a.	Briefly define sales margin, capital turnover, and return on investment.

Sales margin	Income divided by sales revenue
Capital turnover	Sales revenue divided by invested capital
Return on investment	Income divided by invested capital

1-b.	Compute sales margin, capital turnover, and return on investment for the Hardware Division over the past nine months. (Omit the "%" sign in your response. Round your answers to 2 decimal places.)

Sales margin	7.5  %
Capital turnover	80  %
Return on investment	6  %

3.	Are there possible long-term problems associated with strategy (c)?
	Yes
4-a.		Determine the ROI of the investment in Anderson Manufacturing and do the same for the investment in Palm Beach Enterprises. (Omit the "%" sign in your response.)

Anderson Manufacturing ROI	12  %
Palm Beach Enterprises ROI	8  %

4-b.	Should Washburn reject both acquisitions, accept both the acquisitions, acquire Anderson Manufacturing or acquire Palm Beach Enterprises in order to maximize the ROI?
	Acquire Anderson Manufacturing