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The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses Total $38,000,000 22,8

2. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will inc

b. The company achieves a savings of $19 per unit by using cheaper materials. (Round intermediate and final answer to 2 decim

c. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by

d. As a result of a more intense effort by the sales staff, sales are increased by 25%; operating assets remain unchanged. (R

e. Obsolete items of inventory carried on the records at a cost of $100,000 are scrapped and sold for 10% of the book value.

f. The company uses $300,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. Th

g. The company pays a cash dividend to its shareholders, which results in a $200,000 change in average operating assets. (Rou

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Answer #1

1. ROI = Net operating income / Operating asses = 5320000/19000000 = 28%

.2. (a) ROI = 4920000 / 19000000 = 25.89%

  (b) ROI = 1900000 / 19000000 = 10%

(c) sales - 38000000

(-) variable cost - ( 22800000)

---------------------

15200000

(-) Fixed cost - (7630000)

---------------------

7570000

(-) Tax (2271000)

    -------------------

Net operating income 5299000

   --------------------

ROI = 5299000 / 25000000 = 21.196%

(d) sales inceased by 25%

sales - 47500000

(-) variable cost - (22800000)

-----------------

contribution 24700000

(-) Fixed cost ( 7600000)

------------------

17100000

Tax@30% 5130000

------------------

11970000

--------------------

ROI = 11970000/ 19000000 = 63%

(e) Sales - 38010000

(-)Variable cost - (22800000)

---------------------

15210000

(-) Fixed exp (7600000)

-----------------

7610000

(-) Tax@30% (2283000)

-------------------

5327000

-----------------

ROI = 5327000 / 18900000 = 28.18%   

(f) Net operating income = 5320000

Operating assets = 18700000

ROI = 5320000 / 18700000 = 28.45%

(g) Net operating income = 5120000

Operating assets = 18800000

ROI = 5120000 / 18800000 = 27.23%

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