100 points for several years. The frm\'s owners have descrbed the store as a Tig

Question

100 points for several years. The frm's owners have descrbed the store as a Tigh-price. high-servon·operation that provides its of assistance to its customers. Margr has averaged a relatively high 36% per year store is about to open in the area served by Charle's, and management is considering lowering prices to compete effectively for several years, but turnover has been a relatively low 0.5 based on average total assets of $5,000,000. A discount furmiture Required a. Calculate current sales and ROl for Charlie's Furniture Store.(Round your "RO to 1 decimal place.) Sales RO redtohrve the same b Assuing that the new strategy would reduce margin to 20%, and asu ing tat ae age total asets w uld stay the same, ca ulan the sales that would be ROI as Chartie's currenty eams e. Suppose you presented the resuits of your analysis in parts a and b of this problem to Charlie, and he replied, "What are you teling me? If I reduce my prices as planned, then Ihave to practically dotie my sales vorme to earn the same return Gven the resus of your analyss, what is the actual amount of mease n sales requred, d. Now S ppo se Chane says, nou know, rm not convr ced thanower ng prees is my only opton n stayng competit e what were to icrease my man eeng enom? rm mning about kicking off a new advertising campaign after conducting more extensive market research to better identity who my target customer groups are In general, explain to Charte what the ikely mpact of a successful strategy of thvis nature would be on margin, turnover, and ROL Efect on Marg Efect on Tun over

Explanation / Answer

a ROI Margin * Turnover 36*.5 18% Current Sales Average Total assets * Turnover $5000000*.5 $2,500,000 b Turnover 18/20% 90% Current Sales average total assets *Turnover $5000000*.9 $4,500,000 c If the margin gets reduced the sales increases by $2000000 at ROI 18% .Thus increasing the sales by 44.44% which is a good proposition d This strategy could increase the operating expenses and reduce the margin,might also have a positive impact on sales volume .So ROI might still increase. e Increase in Selling price

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