Compute the company’s return on investment (ROI) for the period using the ROI fo

Question

Compute the company’s return on investment (ROI) for the period using the ROI formula stated in terms of margin and turnover. (Round your intermediate calculations and final answer to 2 decimal places.)

For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (1) above.

Using Lean Production, the company is able to reduce the average level of inventory by $101,000. (The released funds are used to pay off short-term creditors.) (Round your answers to 2 decimal places.)

The company achieves a cost savings of $6,000 per year by using less costly materials. (Round your answers to 2 decimal places.)

The company issues bonds and uses the proceeds to purchase $128,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $14,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $5,000 per year. (Round your answers to 2 decimal places.)

Turnover:

ROI:

Sales are increased by 10%; operating assets remain unchanged. (Round your answers to 2 decimal places.)

Turnover:

ROI:

Obsolete inventory carried on the books at a cost of $19,000 is scrapped and written off as a loss.(Round your answers to 2 decimal places.)

Turnover:

ROI:

The company uses $176,000 of cash (received on accounts receivable) to repurchase and retire some of its common stock. (Round your answers to 2 decimal places.)

Turnover:

ROI:

*I got the answers to 1-3, just need 4-7

Explanation / Answer

(4) Interest expense is not considered for operating income but decrease in production cost will increases net operating income by $5000

Total net operating income = $87,000

Margin = $87,000/ 1,000,000 = 8.7%

Purchase of machinery will increase average operating assetst to $621,000

Turnover = $1,000,000/ $621,000   = 1.61

ROI          = 8.7 *   1.61         = 14%

(5) Sales = $1,000,0000 @110 % = $1,100,000

Margin   = $90,200/ 1,000,000      = 9.02%

Turonver = 1100,000/593,000     = 1.85

ROI          = 9.02 * 1.85             = $16.69%

6) sale of obolete inventory decrease net opetiang income by $19,000

Assest decrease = $474,000

Margin   =   63,000/1,000,000 = 6.3%

Turnover = 1,019,000/474,000 = 2.15

ROI          = 6.3 * 2.15             = 13.545%

7)Average operaing assets = $317,000

Margin        = 8.2

Turnover = $1000,000/ 317,000 = 3.15

ROI          = 8.2 * 3.15                 = 25.83%

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