Question 7 For its three investment centers, Gerrard Company accumulates the fol

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Question 7 For its three investment centers, Gerrard Company accumulates the following data: I II III Sales $2,090,000 $3,943,000 $4,079,000 Controllable margin 841,330 1,856,790 4,251,450 Average operating assets 4,949,000 8,073,000 12,147,000 The centers expect the following changes in the next year: (I) increase sales 10%; (II) decrease costs $384,000; (III) decrease average operating assets $545,000. Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 78%. (Round ROI to 1 decimal place, e.g. 1.5.) I II III The expected return on investment % % %

Explanation / Answer

I II III Net income Of previous year 841330 1856790 4251450 Increase in sales 209000    [2090000*.10] 394300    [3943000*.10] 407900   [4079000*.10] Savibgs in cost 384000 384000 384000 Net income of next year [A] 1434330 2635090 5043350 Average asset invested [B] 4949000-545000= 4404000 8073000-545000= 7528000 12147000-545000= 11602000 ROI [A/B[ 32.6% 35% 43.5%

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