Solomon Company calculated its return on investment as 10 percent. Sales are now

Question

Solomon Company calculated its return on investment as 10 percent. Sales are now $440,000, and the amount of total operating assets is $460,000.

Required

a) If expenses are reduced by $43,700 and sales remain unchanged, what return on investment will result? (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).)

b) If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Explanation / Answer

a) Operating income = 460000*10% = 46000

Return on investment = (46000+43700)*100/460000 = 19.50%

b) ROI = Operating income*100/average assets

19.50   = 46000*100/X

X( Average operating assets) = 235897

Operating assets must reduced by 224103

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