Zachary Company calculated its return on investment as 10 percent. Sales are now
ID: 2516093 • Letter: Z
Question
Zachary Company calculated its return on investment as 10 percent. Sales are now $490,000, and the amount of total operating assets is $510,000.
Required
If expenses are reduced by $51,000 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).)
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.)
Explanation / Answer
Current operating income (510,000*10%)
$51,000
A
IF expenses are reduced by 51,000
Operating income after reducing exp
(51,000+51,000)
$102,000
Ans
Return on investment (102,000/510,000)*100
20%
B
If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result?
Required return on investment
20%
Operating income
$51,000
Ans
Operating assets should be (51,000/20%)
$255,000
Current operating income (510,000*10%)
$51,000
A
IF expenses are reduced by 51,000
Operating income after reducing exp
(51,000+51,000)
$102,000
Ans
Return on investment (102,000/510,000)*100
20%
B
If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result?
Required return on investment
20%
Operating income
$51,000
Ans
Operating assets should be (51,000/20%)
$255,000
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