Homework SourseCompute the expected ROI in 2014 for the Home Division assum
Compute the expected ROI in 2014 for the Home Division, assuming the following independent changes to actual data. (Round ROI to 1 decimal place, e.g. 1.5%.)
Expected ROI
| Expected ROI | |||||
| (1) | Variable cost of goods sold is decreased by 6%. |
| % | ||
| (2) | Average operating assets are decreased by 10%. |
| % | ||
| (3) | Sales are increased by $200,070, and this increase is expected to increase contribution margin by $85,430. |
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Solution
1)Net income=1,400,900-799,700-250,180=351,020
ROI= net income/Investment
Investment= 351,020/17.6%=$1,994,432
New Variable cost of goods sold=674,740*94%=$630,495.6
Total Variable cost=630,495.6+124,960=$759,215.6
NetIncome= Revenue-Varibale costs-fixed cost=1,400,900-759,215.6-250,180=$391,504.4
ROI=391504.4/1994432=19.63%
2)Average operating assets Decreased by 10%
New Avg Op Assets=1,994,432*0.9=$1,794,988.64
Net income=1,400,900-799,700-250,180=351,020
ROI=351,020/1,794,988.64=19.56%
