Exercise 15-13 Return on investment LO 15-7 Rooney Company calculated its return

Question

Exercise 15-13 Return on investment LO 15-7 Rooney Company calculated its return on investment as 10 percent. Sales are now $430,000, and the amount of total operating assets is $450,000. Required a. If expenses are reduced by $42,300 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.) a. Return on investment b. Operating assets must by

Explanation / Answer

Answer

ROI = Net Profit / Total Investment * 100 Sales 430000 Total Operating Assets [Total Investment] 450000 ROI 10.00% Net Profit [450000 * 10%] 45000 a. Revised Net Profit [45000 + 42300] 87300 Total Operating Assets [Total Investment] 450000 Revised ROI [87300 / 450000]*100 19.4% b. ROI 19.4% Net Profit 45000 Total Operating Assets [Total Investment] [45000/19.4%] 231959 Decrease in Operating Assets [450000 – 231959] 218041

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