Question 2: Wild River Rafting Company sells outdoor gear. For 2020, Wild River prepares a forecast...
Question 2: Wild River Rafting Company sells outdoor gear. For 2020, Wild River prepares a forecast that includes the following: 2020 Projected Sales $1,000,000 2020 Projected Net Operating Income $40,000 2020 Projected Average Operating Assets $400,000 Wild River believes that by targeting their advertising that Wild River’s sales could go up $100,000 with no change to expenses. The Net Operating Income margin on sales would remain the same as the projected margin above. If Wild River was able to increase revenue by $100,000 and maintain the same margin percentage, what would be Wild River’s return on Investment?
Homework Answers
New Sales = Projected Sales + increase in revenue
= $1,000,000 + $100,000
= $1,100,000
Average Operating Assets = $400,000
New Turnover = New Sales / Average Operating
Assets
= $1,100,000 / $400,000 =
2.75
As per question Operating Income margin on sales remains same
Margin = Operating Income / Sales
= $40,000 / $1,000,000 = 4%
Wild River’s return on Investment = New
Turnover x Margin
= 2.75 x 4%
. = 11 %
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Question 2: Wild River Rafting Company sells outdoor gear. For
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