32. Return on investment Albany Company calculated its return on investment as 1

Question

32. Return on investment

Albany Company calculated its return on investment as 13 percent. Sales are now $280,000, and the amount of total operating assets is $444,000.

If expenses are reduced by $28,000 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).)

RETURN ON INVESTMENT( )

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 final answer to the nearest whole dollar amount.)

OPERATING ASSETS MUST BE_____________________BY_________________   

Albany Company calculated its return on investment as 13 percent. Sales are now $280,000, and the amount of total operating assets is $444,000.

Explanation / Answer

a)Return on investment =net income /total asset

          .13 = net income / 444000

        net income = 444000 *.13 = 57720

So if expense are reduced by 28000 ,net income will increase by 28000 + 57720 = 85720

Return on investment (new) = 85720 / 444000

                                                = .1931 or 19.31%

19) .1931 = 57720 / operating asset

     operating asset = 57720 /.1931

                                = $ 298,912.48 (approx 298912)

operating asset must be decrease by 145088           [298912-444000]

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