Question

please answer 2B and 2C

Solano Company has sales of $740,000, cost of goods sold of $490,000, other operating expenses of $46,000, average invested assets of $2,200,000, and a hurdle rate of 10 percent. Required: 1. Determine Solano's return on investment (ROI), investment turnover, profit margin, and residual income. 2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario's impact on Solano's ROI and residual income. (Note: Treat each scenario independently) a. Company sales and cost of goods sold increase by 30 percent. b. Operating expenses decrease by $10,000. c. Operating expenses increase by 10 percent. d. Average invested assets increase by $420,000. e. Solano changes its hurdle rate to 16 percent. & Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Reg 1 Req 2B Reg 20 Req 2D Reg 2E Several possible changes that Solano could face in the upcoming year follow. Determine each scenario's impact on Solano's ROI and residual income. (Note: Treat each scenario independently.) Operating expenses decrease by $10,000. (Loss amounts should be indicated with a minus sign. Enter your ROI percentage answer to 2 decimal places, (l.e., 0.1234 should be entered as 12.34%.)) Show less 8.82 % Return on Investment Residual Income (Loss) (26.000 < Reg 2A Reg 2C>

Answer 1

Return on Investment Residual Income Minimum Required Return Net Operating Income / Average Invested Assets Net Operating Income - Minimum Required Return Average Invested Assets x Hurdle Rate 2B) Sales Less: Cost of goods sold Less: Operating Expenses (46,000 - 10,000) Net Operating Income 740,000 (490,000) (36,000) 214,000 Return on Investment Net Operating Income (a) Average Invested Assets (b) Return on Investment (a/b) 214,000 2,200,000 9.73% Residual Income (loss) Calculation of Minimum Required Return Average Invested Assets (a) Hurdle rate (b) Minimum Required Return (a xb) 2,200,000 10.00% 220,000 Net Operating Income Less: Minimum Required Return Residual Income 214,000 (220,000) (6,000) Return on Investment Residual Income (loss) 9.73% (6,000)

20) Sales Less: Cost of goods sold Less: Operating Expenses (46,000 x 110%) Net Operating Income 740,000 (490,000) (50,600) 199,400 Return on Investment Net Operating Income (a) Average Invested Assets (b) Return on Investment (a/b) 199,400 2,200,000 9.06% Residual Income (loss) Calculation of Minimum Required Return Average Invested Assets (a) Hurdle rate (b) Minimum Required Return (axb) 2,200,000 10.00% 220,000 Net Operating Income Less: Minimum Required Return Residual Income 199,400 (220,000) (20,600)| Return on Investment Residual Income (Loss) 9.06% (20,600)