FitPlus is a regional chain of health clubs. Each club’s manager has the authori
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Question
FitPlus is a regional chain of health clubs. Each club’s manager has the authority to make investments as needed and is evaluated based largely on ROI. FitPlus Club 52 reported the following results for the past year:
The following questions are to be considered independently.
Compute the club’s ROI. (Do not round intermediate calculations. Round your answer to 2 decimal place.)
Assume that the manager of the club is able to increase sales by $80,000 and that as a result operating income increases by $6,000. Further assume that this is possible without any increase in operating assets. What would the club’s ROI be? (Do not round intermediate calculations. Round your answer to 2 decimal place.)
Assume that the manager of the club is able to reduce expenses by $3,200 without any change in sales or operating assets. What would the club’s ROI be? (Do not round intermediate calculations. Round your answer to 2 decimal place.)
Assume that the manager of the club is able to reduce operating assets by $20,000 without any change in sales or operating income. What would the club’s ROI be? (Do not round intermediate calculations.)
FitPlus is a regional chain of health clubs. Each club’s manager has the authority to make investments as needed and is evaluated based largely on ROI. FitPlus Club 52 reported the following results for the past year:
Explanation / Answer
Answer to Part 1.
Return on Investment = Net Operating Income / Average Operating Assets
Return on Investment = 15,000 / 80,000
Return on Investment = 18.75%
Answer to Part 2.
New Sales = $500,000 + $80,000 = $580,000
New Operating Income = $15,000 + $6,000 = $21,000
Average Operating Assets will not Change; therefore Average Operating Assets will be $80,000.
New ROI = 21,000 / 80,000
New ROI = 26.25%
Answer to Part 3.
The Net Operating Income will decrease by the increase in expenses of $3,200.
Net Operating Income = $15,000 - $3,200 = $11,800
ROI = 11,800 / 80,000
ROI = 14.75%
Answer to Part 4.
New Operating Assets = $80,000 - $20,000 = $60,000
Sales = Unchanged = $500,000
Operating Income = Unchanged = $15,000
ROI = 15,000 / 60,000
ROI = 40%
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