Question

Charlie’s Furniture Store has been in business for several years. The firm's owners have described the store as a "high-price, high-service" operation that provides lots of assistance to its customers. Margin has averaged a relatively high 29% per year for several years, but turnover has been a relatively low 0.4 based on average total assets of $800,000. A discount furniture Store is about to open in the area served by Charlie's, and management is considering lowering prices to compete effectively.

Required:

a. Calculate current sales and ROI for Charlie’s Furniture Store. (Round your "ROI" to 1 decimal place.)

sales: 320,000

ROI: 11.6%

b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROI as Charlie’s currently earns. (Do not round intermediate calculations.)

Sales: 464,000

c. Suppose you presented the results of your analysis in parts a and b of this problem to Charlie, and he replied, "What are you telling me? If I reduce my prices as planned, then I have to practically double my sales volume to earn the same return?" Given the results of your analysis, what is the actual amount of increase in sales required? (Do not round intermediate calculations.)

**I really need help with part C. of this question, I answered the two above already. I believe it is a multi-step question, and I cannot seem to form the right equations. Any help or advice is appreciated!

Answer 1

The detailed solution has been provided in attached sheet. In the given question the person need not to double his sales. The sales has to be increased by 45 % only. For complete answer refer the sheets