Question

CommercialServices Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below: Sales $ 2,280,000 Net operating income $ 250,800 Average operating assets $ 760,000 The following questions are to be considered independently. Garrison 16e Rechecks 2019-01-10 3. The Chief Financial Officer of the company believes a more realistic scenario would be a $1,050,000 increase in sales, requiring a $572,000 increase in average operating assets, with a resulting $165,450 increase in net operating income. What would be the company’s ROI in this scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

New sales = $2,280,000 + $1,050,000 = $3,330,000

New average operating assets = $760,000 + $572,000 = $1,332,000

New net operating income =$250,800 + $165,450 = $416,250

ROI = Net operating income        x 100

         Average operating assets

ROI = $416,250       x 100

          $1,332,000

ROI = 31.25%

Explanation:

ROI is the ratio of net operating income to average operating assets multiplied by 100. Sales have increased by $1,050,000 thereby increasing the new sales to $3,330,000. Net operating income has also increased by $165,450  while average operating assets have increased by $572,000. When all these changes are effected, ROI becomes 31.25%.