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ACCY 052 Chap 10 HW

# ACCY 052 Chap 10 HW - B If I was in Clem Baker’s position...

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Ryan Hunter ACCY 052 Chap 10 HW 4/16/08 P10-9A 1. ROI for recent year: 1,080,000/4,500,000 = .24 = 24% ROI with new product line: 23.8% (1,130,000/4,750,000) 10,000,000 Sales 6,000,000 VE 4,000,000 CM 2,870,000 FE 1,130,000 Net operating income 4,750,000 OA 2. Reject the new product line because the ROI is lower than the most recent year, which was without it. 3. Headquarters would be anxious because the ROI last year was 18%, and they want to increase the ROI even more than 24%. 4. A. Residual income for most recent year: \$405,000 Residual income with new product line: \$417,500 Avg Op Assets \$4,500,000 Min req ret = 4,500,000 x .15 = 675,000 Min req ret = 4,750,000 x .15 = 712,500 Net Op Income \$1,080,000 Net Op Income \$1,130,000 Min req return – 675,000 Min req return – 712,500 Residual income \$405,000 Residual income \$417,500

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Unformatted text preview: B. If I was in Clem Baker’s position, I would accept the new product line because the residual income has increased with the new product line added on, from the most recent year’s income. P10-14A. 1. ROI for the period: .2 = 20% Margin = 800,000/8,000,000 = .1 = Turnover = 8,000,000/4,000,000 = 2 = 2. Margin will remain unchanged, turnover will increase. ROI = .1 x 2.5 = 25% 3. Margin will increase, turnover will remain unchanged. ROI = .106 x 2 = 21.2% 4. Margin will increase, turnover will decrease ROI = .12 x 1.6 = 0.192 = 19.2% 5. Margin will increase, turnover will increase. ROI = .182 x 2.2 = .4 = 40% 6. Margin will decrease, turnover will increase. ROI = 18.4% 7. Margin will stay the same, turnover will decrease. ROI = 19.1%...
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ACCY 052 Chap 10 HW - B If I was in Clem Baker’s position...

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