Question

8 please show all work as necessary

Solano Company has sales of $740,000, cost of goods sold of $490,000, other operating expenses of $46,000, average invested assets of $2,200,000, and a hurdle rate of 10 percent. Required: 1. Determine Solano's return on investment (ROI), investment turnover, profit margin, and residual income. 2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario's impact on Solano's ROI and residual income. (Note: Treat each scenario independently.) a. Company sales and cost of goods sold increase by 30 percent. b. Operating expenses decrease by $10,000. c. Operating expenses increase by 10 percent. d. Average invested assets increase by $420,000. e. Solano changes its hurdle rate to 16 percent. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B Req 2C Reg 2D Reg 2E Determine Solano's return on investment (ROI), investment turnover, profit margin, and residual income. (Loss amounts should be indicated with a minus sign. Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.) Show less Return on Investment Investment Turnover Profit Margin Residual Income (Loss)

this is for part A, B, C, D, and E for this question.

Answer 1

Answer - 1 sales cost of Good sold Operating Expense Average Invested assest $ 7,40,000 $ 4,90,000 $ 46,000 $ 22,00,000 sales cost of Good sold Operating Expense Profit $ 7,40,000 $ 4,90,000 $ 46,000 $ 2,04,000 A ROI = Return i.e. Profit / Investment 204000/2200000 9.27% ROI The investment turnover ratio compares the revenues produced by a business to its debt and equity. The ratio is used to evaluate the ability of a management team to generate revenue with a specific amount of funding. Investment Turnover Ratio is Net sales - (Shareholders' equity + Debt outstanding) As question has not provided information regarding Debt & Equity. However Invested asset details is provided which can be used to determine Investment turnover Ratio So, 740000/2200000 Investment Turnover Ratio 0.34

Profit Margin = Profit / Sales 204000/740000 27.57% D Residual Income = Net operating Income (1.e. Profit) - (Minimum required Return * Cost of operating Assets) Profit Hurdle Rate i.e Minum Required Retun Cost of operating Assets i.e Averrage Invested assets 204000 10% 2200000 Resudual Income A - (B*C) - 16000

		Previous	Increase By	Revised
2a	sales	$ 7,40,000	30%	$ 9,62,000.0
	cost of Good sold	$ 4,90,000	30%	$ 6,37,000.0
	Operating Expense	$ 46,000		$ 46,000
	Profit	$ 2,04,000		$ 2,79,000.0
	ROI = Return i.e. Profit / Investment
	279000/2200000
	12.68%	ROI
	Residual Income = Net operating Income (I.e. Profit) - (Minimum required Return * Cost of operating Assets)
	Profit			$ 2,79,000.0	A
	Hurdle Rate i.e. minimum Required Return			10%	B
	Cost of operating Assets i.e. Average Invested assets			2200000	C
	Residual Income	A - (B*C)	59000
2b		Previous	Increase By
	sales	$ 7,40,000		$ 7,40,000
	cost of Good sold	$ 4,90,000		$ 4,90,000
	Operating Expense	$ 46,000	$ 10,000	$ 56,000
	Profit	$ 2,04,000		$ 1,94,000
	ROI = Return i.e. Profit / Investment
	194000/2200000
	8.82%	ROI
	Residual Income = Net operating Income (I.e. Profit) - (Minimum required Return * Cost of operating Assets)
	Profit			$ 1,94,000.0	A
	Hurdle Rate i.e. minimum Required Return			10%	B
	Cost of operating Assets i.e. Average Invested assets			2200000	C
	Residual Income	A - (B*C)	-26000
2c		Previous	Increase By
	sales	$ 7,40,000		$ 7,40,000
	cost of Good sold	$ 4,90,000		$ 4,90,000
	Operating Expense	$ 46,000	10%	$ 45,999
	Profit	$ 2,04,000		$ 2,04,001
	ROI = Return i.e. Profit / Investment
	204001/2200000
	9.27%	ROI
	Residual Income = Net operating Income (I.e. Profit) - (Minimum required Return * Cost of operating Assets)
	Profit			$ 2,04,001.1	A
	Hurdle Rate i.e. minimum Required Return			10%	B
	Cost of operating Assets i.e. Average Invested assets			2200000	C
	Residual Income	A - (B*C)	-15998.9
2d		Before	Increase by	After increase
	Average Invested assets	$ 22,00,000	$ 4,20,000	$ 26,20,000
	ROI = Return i.e. Profit / Investment
	204000/2620000
	7.79%	ROI
	Residual Income = Net operating Income (I.e. Profit) - (Minimum required Return * Cost of operating Assets)
	Profit			$ 2,04,000.0	A
	Hurdle Rate i.e. minimum Required Return			10%	B
	Cost of operating Assets i.e. Average Invested assets			$ 26,20,000	C
	Residual Income	A - (B*C)	-58000
2e	ROI = Return i.e. Profit / Investment
	204000/2200000
	9.27%	ROI would remain same
	Residual Income = Net operating Income (I.e. Profit) - (Minimum required Return * Cost of operating Assets)
	Profit			$ 2,04,000.0	A
	Hurdle Rate i.e. minimum Required Return			16%	B
	Cost of operating Assets i.e. Average Invested assets			$ 22,00,000	C
	Residual Income	A - (B*C)	-148000