i need help on 4a, thank you Kenneth Washburn, head of the Sporting Goods Divisi
ID: 2581946 • Letter: I
Question
i need help on 4a, thank you
Kenneth Washburn, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. "If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I'm beginning to worry about my job," he moaned. Washburn is evaluated on the basis of ROl. Selected figures for the past nine months follow Sales Operating income Invested capital $ 7,700,000 539,000 11,000,000 In an effort to make something out of nothing and to salvage the current year's performance, Washburn was contemplating implementation of some or all of the following four strategies a. Write off and discard $92,000 of obsolete inventory. The company will take a loss on the disposal b. Accelerate the collection of $122,000 of overdue customer accounts receivable c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the division $227,000 of expenses and will conserve cash resources d. Acquire two competitors that are expected to have the following financial characteristic:s Projected Invested Capital jected Projected Sales Pro Operating Expenses Anderson Manufacturing Palm Beach Enterprises $4,540,000 $3,500,000 $10,400,000 6,790,000 6,310,000 8,000,000Explanation / Answer
ROI
Anderson Manufacturing $1,040,000/$10,400,000*100 i.e. 10% (Projected Sales Less Projected Operating Expenses/Projected Invested Capital)
Palm Beach Enterprises $ 480,000/$ 8,000,000*100 i.e. 6% (Projected Sales Less Projected Operating Expenses/Projected Invested Capital)
So ROI of Anderson Manufacturing is 10 % and ROI of Palm Beach Enterprises is 6%.
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