Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended. Sales revenue Cost of goods sold Operating expenses Average invested capital 6,900,000 2,928,000 3,696,000 3,450,000 £ denotes the British pound sterling, the national monetary unit of Great Britain. 2. If the sales and average invested capital remain the same during the next year, to what level would total expenses have to be reduced in order to improve the firm's ROl to 15 percent?

Explanation / Answer

As per given information

sales revenue = $6900000

less:cost of goods sold = ($2928000)

operating expenses = ($3696000)

net income is = $276000

existing return on investment is 276000/3450000 = 8%

required rate of return is 15% i.e., 3450000*15% = 517500

expenses to be reduced by (517500-276000) = $241500

$241500 of expenses to be reduced in order to achieve 15% of return on investment

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