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27 Nov 2019

The rate of return on investment (ROI) has two components:Select one: a. Profit margin percentage and accounts receivableturnover ratio. b. Sales margin percentage and investment turnoverratio. c. Profit margin percentage and investment turnover ratio.d. Sales margin percentage and accounts receivable turnoverratio.

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23 Mar 2019
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Related questions

Profit Margin, Investment Turnover, and return on investment

The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges):

Sales $1,992,000
Cost of goods sold 896,400
Gross profit $1,095,600
Administrative expenses 597,600
Income from operations $498,000

The manager of the Consumer Products Division is considering ways to increase the return on investment.

a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $3,320,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.

Profit margin %
Investment turnover
Rate of return on investment %

b. If expenses could be reduced by $99,600 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment turnover to one decimal place.

Profit margin %
Investment turnover
Rate of return on investment %

Kaler Company has sales of $1,390,000, cost of goods sold of$780,000, other operating expenses of $193,000, average investedassets of $4,300,000, and a hurdle rate of 12 percent.

Required:
1. Determine Kaler’s return on investment (ROI),investment turnover, profit margin, and residual income.(Do not round your intermediate calculations. Enter yourROI and Profit Margin answer to the nearest whole percentage,(i.e., 0.1234 should be entered as 12%). Round your InvestmentTurnover answers to 4 decimal places.)



2. Several possible changes that Kaler could facein the upcoming year follow. Determine each scenario’s impact onKaler’s ROI and residual income. (Note: Treat each scenarioindependently.) (Enter your ROI percentage answers to 2decimal places, (i.e., 0.1234 should be entered as12.34%.))

a. Company sales and cost of goods sold increaseby 15 percent.



b. Operating expenses increase by $82,000.



c. Operating expenses decrease by 20percent.



d. Average invested assets decrease by$375,000.



e. Kaler changes its hurdle rate to 9percent.

Fitness Fanatics is a regional chain of health clubs. Themanagers of the clubs, who have authority to make investments asneeded, are evaluated based largely on return on investment (ROI).The company's Springfield Club reported the following results forthe past year:


Sales $ 710,000
Net operatingincome $ 11,360
Average operatingassets $ 100,000


1. Compute the Springfield club’sreturn on investment (ROI). (Round your Turnover answer to2 decimal places. Round your Margin and ROI percentage answers to 2decimal places (i.e., 0.1234 should be entered as12.34).)

Assume that the manager of the club is able to increase sales by$71,000 and that, as a result, net operating income increases by$5,041. Further assume that this is possible without any increasein operating assets. What would be the club’s return on investment(ROI)? (Round your Turnover answer to 2 decimal places.Round your Margin and ROI percentage answers to 2 decimal places(i.e., 0.1234 should be entered as 12.34).)

3.

Assume that the manager of the club is able to reduce expensesby $2,840 without any change in sales or operating assets. Whatwould be the club’s return on investment (ROI)? (Round yourTurnover answer to 2 decimal places. Round your Margin and ROIpercentage answers to 2 decimal places (i.e., 0.1234 should beentered as 12.34).)

4.

Assume that the manager of the club is able to reduce operatingassets by $50,000 without any change in sales or net operatingincome. What would be the club’s return on investment (ROI)?(Round your Turnover answer to 2 decimal places. Round yourMargin and ROI percentage answers to 2 decimal places (i.e., 0.1234should be entered as 12.34).)

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