Question

The owners pete and peggy peterson have about 10,000 dollars invested in the business. Their desires rate of return on this investment is 10 percent. what volume of business must be generated to reach this ROE (Rate of equity) goal. show in DOLLARS AND PIZZAS. both the question and information are in the photos

2. The owners, Pete and Peggy Peterson, have about $10,000 invested in the business. Their desired rate of return on this investment is 10 percent. What volume of business (again, in dollars and in pizzas) must be generated to reach this ROE goal?

Answer 1

Equity investment = $10,000
ROE Target = 10%
ROE in Dollar terms = $10,000*10% = $1,000
COGS per pizza	$5.55
Variable cost per pizza	$1.95
Selling price per pizza	$10.00
Fixed cost	$5,500.00
Scenario 1. If Tipple P Pizza achieves the target of selling 2600 pizzas a year
Total Revenue (A)	Selling price * Number of pizzas			2,600*100 = $26,000
Total COGS (B)	COGS per pizza * Number of pizzas			2,600*5.55 = $14,430
Total Variable cost (C )	Variable cost per pizza * Number of pizzas			2,600*1.95 = $5,070
Fixed cost (D)				= $5,500
Profit (A-B-C-D)				= $1,000
Return on Equity	Profit / Equity investment			1,000/10,000 = 10%
So if Tipple Pizza achieves sales of $26,000 or 2600 pizzas in a year their target of 10% return on equity would be achieved
Note : tax rate not given in question hence not applied