Gibson Company calculated its return on investment as 10 percent. Sales are now

Question

Gibson Company calculated its return on investment as 10 percent. Sales are now $380,000, and the amount of total operating assets is $400,000. Required a. If expenses are reduced by $35,600 and sales remain unchanged, what return on investment will result? (Round your answer to2 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. Retum on investment 1% b. Operating assets must by

Explanation / Answer

a) Return on investment = Income from operation*100/average assets

                                         = (40000+35600)*100/400000

Return on investment = 18.9%

b) Calculate assets :

18.9 = 40000*100/X

X(operating assets) = 211640

Operating assets must reduce by (400000-211640) = -188360

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