Last year, Valley Manufacturing reported sales of $800,000, net operating income

Question

Last year, Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average operating assets of $400,000. The company is considering the purchase of equipment that will reduce expenses by $20,000.The equipment will cost $100,000 and be purchased by issuing a notes payable. Sales will remain unchanged. If Valley accepts the project, its return on investment (ROI) after the purchase is projected to__________ (increase/desrease) from the current level of _________% to the new return on investment (ROI) of___________%

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Explanation / Answer

Statement showing computations Particulars Old New Total Sales            800,000.00                             -              800,000.00 Net Operating Income              40,000.00              20,000.00              60,000.00 Invested Assets            400,000.00            100,000.00            500,000.00 Return On Investment = NOI/ Invested Assets 10.00% 20.00% 12.00% If Valley accepts the project, its return on investment (ROI) after the purchase is projected to 12%   increase from the current level of 10%% to the new return on investment (ROI) of 20%

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