Required information [The following information applies to the questions display
ID: 2548868 • Letter: R
Question
Required information [The following information applies to the questions displayed below.] CommercialServices.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below: Sales $ 3,080,000 Net operating income $ 184,800 Average operating assets $ 770,000 1. Compute the company's return on investment (ROI). 2. The entrepreneur who founded the company is convinced that sales will increase next year by 60% and that net operating income will increase by 120%, with no increase in average operating assets. What would be the company’s ROI? 3. The Chief Financial Officer of the company believes a more realistic scenario would be a $1,100,000 increase in sales, requiring a $275,000 increase in average operating assets, with a resulting $107,800 increase in net operating income. What would be the company’s ROI in this scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Return on investment = net income/average operating assets
Net operating income = $184,800
Average operating assets = $770,000
Return on investment = 184,800/770,000 = 24%
Increase in net operating income is 120%, hence net operating income = $184,800 + 120% of $184,800
Net operating income = $406,560
Average operating assets = $770,000
Return on investment = 406,560/770,000 = 52.8%
Average invested assets = $770,000 + $275,000 = $1,045,000
Return on investment= 292,600/1,045,000 = 28%
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