The following information applies to the questions displayed below] Geoff\'s Ele
ID: 2329746 • Letter: T
Question
The following information applies to the questions displayed below] Geoff's Electronic Store has been in business for several years. The firm's owners have as a "high-price, high averaged a relatively high 32% per year for several years, but turnover has been a relatively low 0.6 based on average total assets of $800,000. A discount Electronic Store is about to open in the area served by Geoff's, and management is considering lowering prices to compete effectively. the store e" operation that provides lots of assistance to its customers. Margin has 1 1 value: 0.83 points Required a. Calculate current sales and ROI for Geoffs Electronic Store. (Round your "ROI" to 1 decimal place. Sales ROI b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROI as Geoff's currently eans. (Do not round your intermediate calculations)Explanation / Answer
A.
Given, total assets= $800000
Assets/Turnover Ratio= 0.6
Profit margin= 32%
Assets/turnover ratio= Turnover/total assets
=0.6= turnover/$800000
= Turnover=800000*0.6
Turnover i.e.Sales=$480000.
Profit= sales*profit margin
Profit= 480000*32%
Profit=. $153600.
ROI= net profit/total assets
ROI= 153600/800000*100
ROI= 19.2%
B.
Now, strategies have been changed. We have reduced profit margin to 20%. Total assets are $800000 and ROI is same i.e. 19.2%
Let sales be $x.
Therefore, profit is $x*20%= 0.2x
ROI= net profit/total assets
19.2= 0.2x/800000
0.2x= 19.2*8000
0.2x= 153600
X= 153600/0.2
X=sales= $768000.
E.
actually sales prices are relatively high,so sales prices should not be increased. to compete it should try to reduce cost and invreinc in margin. Therefore it should implement labour saving strategies and reduction in inventory carrying costs.
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