Which of the following is considered a disadvantage of ROI? a. ROI encourages ma

ID: 2556115 • Letter: W

Question

Which of the following is considered a disadvantage of ROI? a. ROI encourages managers to look carefully at relationships between sales revenues, expenses and investment, ROI encourages cost efficiency b. c. ROI discourages managers of subunits with high ROls to invest in projects d. The Alpha Beta Corporation had the following information for 20X5: with low ROls that are acceptable to the organization as a whole. ROI discourages excessive investment in operating assets. Revenues Operating Expenses Total Assets $900,000 $670,000 $1,150,000 What is the return on investment? During the past twelve months, the Aaron Corporation had a net income of $50,000. What is the amount of the investment if the return on investment is 20%?

Explanation / Answer

Answer is C

ROI discourages the managers of subunits with high ROIs ti invest in projects with low ROI projects that are acceptable to the organization as a whole

revenue

900000

less expenses

670000

operating profit

230000

total assets

1150000

ROI = operating profit/total assets

230000/1150000

20.00%

ROI = net income/total assets

20% = 50000/total assets

total assets = 50000/20%

250000