CommercialServices.com
Corporation provides business-to-business services on the Internet.
Data concerning the most recent year appear below:
| Sales | $8,400,000 |
| Net operating income | $800,000 |
| Average operating assets | $3,200,000 |
| Consider each of the following requirements independently. |
| Requirement 1: |
| Compute the company's return on investment (ROI). (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Return on investment (ROI) | % |
| Requirement 2: |
The
entrepreneur who founded the company is convinced that sales will
increase next year by 40% and that net operating income will increase by
160%, with no increase in average operating assets. What would be the
company's ROI? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
|
| Return on investment (ROI) | % |
| Requirement 3: |
The
chief financial officer of the company believes a more realistic
scenario would be a $1,900,000 increase in sales, requiring a $800,000
increase in average operating assets, with a resulting $330,000 increase
in net operating income. What would be the company's ROI in this
scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
|
| Return on investment (ROI) | % |
rev: 05_03_2012, 05_16_2012
Explanation:
1:
2:
3:
| Margin = |
Net Operating income
| |
| Sales | ||
| = |
$800,000
| = 9.524% |
| $8,400,000 | ||
| Turnover = |
Sales
| |
| Average operating assets | ||
| = |
$8,400,000
| = 2.625 |
| $3,200,000 | ||
| ROI | = Margin × Turnover |
| = 9.524% × 2.625 = 25% |
2:
| Margin = |
Net Operating income
| |
| Sales | ||
| = |
$800,000(1.00+1.6)
| |
| $8,400,000(1.00+0.4) | ||
| = |
$2,080,000
| = 17.687% |
| $11,760,000 | ||
| Turnover = |
Sales
| |
| Average operating assets | ||
| = |
$8,400,000(1.00+0.4)
| |
| $3,200,000 | ||
| = |
$11,760,000
| = 3.675 |
| $3,200,000 | ||
| ROI | = Margin × Turnover |
| = 17.687% × 3.675 = 65% |
3:
| Margin = |
Net Operating income
| |
| Sales | ||
| = |
$800,000+$330,000
| |
| $8,400,000+$1,900,000 | ||
| = |
$1,130,000
| = 10.971% |
| $10,300,000 | ||
| Turnover = |
Sales
| |
| Average operating assets | ||
| = |
$8,400,000+$1,900,000
| |
| $3,200,000+$800,000 | ||
| = |
$10,300,000
| = 2.575 |
| $4,000,000 | ||
| ROI | = Margin × Turnover |
| = 10.971% × 2.575 = 28.25% |
