Pecs Alley is a regional chain of health clubs. The managers of the clubs, who h

Question

Pecs Alley is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The Springfield Club reported the following results for the past year:


Sales $780,000
Net operating income $18,000
Average operating assets $97,000
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The following questions are to be considered independently. Carry out all computations to two decimal places.


1. Compute the club's return on investment (ROI). (Round interim calculations to 2 decimal places. Round your answer to the nearest whole percentage. Omit the "%" sign in your response.)

2. Assume that the manager of the club is able to increase sales by $79,000 and that, as a result, net operating income increases by $4,000. Further assume that this is possible without any increase in operating assets. What would be the club

Explanation / Answer

1. ROI = Net operating income / Average operating assets = $18000 / $97000 = 18.56 2. ROI = $18000 + $4000 / $97000 = 22.68 3. ROI = $18000 + $2400 / $97000 = 21.03 4. ROI = $18000 / $97000 - $18000 = 22.78

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