Use the following information to answer Question. The Furniture Division of Wave
ID: 2590371 • Letter: U
Question
Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Revenues $400,000
Operating Exp $360,000
Operating Income $40,000
Operating assets $500,000
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Assume that the division believes its revenues and operating expenses will continue to be $400,000 and $360,000, respectively. To what level would the Furniture Division have to reduce its operating assets to achieve the target ROI?
A.
$375,000.
B.
$433,333.
C.
$333,333.
D.
$176,000.
A.
$375,000.
Explanation / Answer
Current ROI = (40000/500000) *100 = 8%
Required ROI = 12%
12% = 40000/Operating assets
Operating assets = 40000/12% = 333333.33
Furniture Division will have to reduce its operating to 333333 to achieve the target ROI.
Answer is C. $333,333.
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