Question

Ches Exercise 09-15 Return on investment LO A1, A2 ZNet Co. is a web-based retail company. The company reports the following for the past year. Sales Operating Income Average invested assets $5,000,000 1,000,000 12,500,000 The company's CEO believes that sales for next year will increase by 20% and both profit margin() and the level of average invested assets will be the same as for the past year. 1. Compute return on investment for the past year 2. Compute profit margin for the past year. 3. If the CEO's forecast is correct, what will return on investment equal for next year? 4. If the CEO's forecast is correct, what will investment turnover equal for next year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute return on investment for the past year.

Answer 1

Next Year Average invested Assets Operting Income sales Choose Numerator: Operting Income 1000000 / / 12500000 1200000 (6000000*20%) 5000000 (5000000*1.20) Return on Investment Choose Denominator Average invested Assets = 12500000 Return on Investment 8.00% Next year If the CEO's Forecast is Correct Profit Margin Choose Numerator: 1/ Choose Denominator = Profit Margin Operting Income sales = Profit Margin 1200000 6000000 = 20.00% Choose Numerator: Operting Income 1200000 Return on Investment Choose Denominator = Return on Investment Return on Average invested Assets = Investment 12500000 9.60% Choose Numerator: sales 6000000 Investment Turnover Choose Denominator = Investment Turnover Average invested Assets = Investment Turnover 12500000 = 0.48