Sales $ 1,500,000 Variable expenses 650,000 Contribution margin 850,000 Fixed ex
ID: 2469227 • Letter: S
Question
Sales $ 1,500,000 Variable expenses
650,000 Contribution margin
850,000 Fixed expenses
580,000 Net operating income
$ 270,000 Average operating assets
$ 1,000,000 This year, the company has a $160,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 70 % of sales Fixed expenses $ 144,000 The company’s minimum required rate of return is 10%.
1) What is the ROI related to this year’s investment opportunity?
2) If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?
3) If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year?
4) If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%.))
Explanation / Answer
Answer 1
Margin => Net operating Income / Sales
=> 24000 / 240000 => 10%
Turnover => Sales / Average Operating Assets
=> 240000 / 160000 => 1.5
The ROI for this year’s investment opportunity is
ROI => Margin * Turnover
=> 10% *1.5
ROI => 15%
Answer 2
Margin => (270000 + 24000) / (1500000 + 240000) => 16.9%
Answer 3
Turnover => (1500000 + 240000) / (1000000 + 160000 ) => 1.3
Answer 4
ROI => 16.9% * 1.3 => 21.97% or 22%
Sales 240000 Less Variable Costs 72000 Contribtuion margin 168000 Less Fixed Cost 144000 Net Opearting Income 24000Related Questions
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