Exercise 15-13 Return on investment LO 15-6 Albany Company calculated its retun

Question

Exercise 15-13 Return on investment LO 15-6 Albany Company calculated its retun on investment as 14 percent Sales are now $268,000, and the amount of total operating assets is $447,000 Required a. if expenses are reduced by $26,800 and sales remain unchanged, what return on investment will result? Round your answer to 2 decimal places. (i.e., 2345 should be entered as 23.45)) Return on investment 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 final answer to the nearest whole dollar amount.) rating assets must be

Explanation / Answer

Answer to Part a.

Return on Investment = Net Operating Income / Total Operating Assets * 100
14 = Net Operating Income / 447,000 * 100
Net Operating Income = $62,580

If the Expenses are getting reduced by $26,800, the Net Operating Income will increase by $26,800
Expected Net Operating Income = $62,580 + $26,800
Expected Net Operating Income = $89,380

Expected Return on Investment = 89,380 / 447,000 * 100
Expected Return on Investment = 20.00%

Answer to Part b.

As the Sales and expenses cannot be changed, therefore, the Net Operating Income will remains same as $62,580.

Return on Investment = Net Operating Income / Total Operating Assets * 100
20 = 62,580 / Total Operating Assets * 100
Total Operating Assets = $312,900

The Operating Assets should be $312,900 to achieve the same result. Therefore, operating assets must be decrease by $134,100 ($447,000 - $312,900).

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