Question

Finch Company calculated its return on investment as 10 percent. Sales are now $360,000, and the amount of total operating assets is $380,000 Required a. If expenses are reduced by $32,300 and sales remain unchanged, what return on investment will result? (Round your answer to 2 decimal places. (.e., 0.2345 should be entered as 23.45).) 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 answer to the nearest whole dollar amount.) a. Return on investment b. Operating assets must 18.50% by decrease

Answer 1

Present Scenario:

ROI	10%	ie 380000*10% = 38000
Operating Assets		380000
Sales		360000

a) If expense reduce by 32300 ie, income increase by 32300. So Income = 38000+32300 = 70300. ROI= 70300/380000*100 = 18.50%

b) in order to increase the ROI from present 10 to 18.5% without changing sales or expenses, we need to DECREASE operating assets. The assets after decrease should be = 38000/18.5*100 = 205405.

Hence, Assets should be Decreased by 174595 .

(please comment in case of any query regarding the solution)