Question

Manyops, Inc., is a manufacturing firm that has experienced strong competition in its traditional business. Management is considering joining the trend to the "service economy" by eliminating its manufacturing operations and concer specialized maintenance services to other manufacturers Management of Manyops Inc., has had a target ROI of 16% on an asset base that has averaged S6 million. To achieve this ROI average total asset tumover of 2 was requi shifts its operations from manufacturing to providing maintenance services, it is estimated that average total assets will decrease to $4 million. Required: a. Calculate net income margin. and sales required for Manyops Inc. to achieve its target Rol as a manufacturing firm intermediate calculations. Round your answers to 2 decimal places.) Enter your Sales and Net income answers in millions (ie 10,000,000 should be entered as 10 should be entered as 10). Da Do Net income Margin Sales million 8.00 % S 12.00 million b Assume that the average margin of maintenance service firms is 3.5%, and that the average ROI for such firms is also 16%. Calculate the net income sales and total asset turnover that Manyops Inc will have if the change to s。 firm is able to earn an average margin and achieve an 16% ROI (Enter your-Sales" and "Net income" answers in millions (i.e., 10,000,000 should be entered as 10). Do not round intermediate calculations. Round your a places.) Net income Sa es Turnover million million

Answer 1

a) Net Income is (Averaged Assets base ROI) Net Income is-(6"1000000"16%) Net Income is $ 960,000/. Margin-Net Income/Sales)*100 Using Asset turnover (Sales/Assets), Sales-Assets *2 Sales is (6 1000000*2) Sales is S12,000,000/ Margin- (960000/12000000) 100 Margin-8.00% Sales is $ 12 Million b) If Assets decrease to 40,00,000/ ROI- (Net Income/Average total assets) 16%-(Net Income/4000000) Net Income required as a service firm-(4000000*16%) Net Income required as a service firm -$ 640,000/. Sales (Net Income/average margin of maintenance service firms) Sales (640000/0.035) Turnover required as a service firm= $ 18,285,714.29/. Sales required is S 18,285.714.29/