acct9-8b - b. If both sales and expenses cannot be changed,...

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ACCT 245 Bronstein Exercise 9-8B Operating income ÷ Operating assets = ROI Operating income ÷ $2,500,000 = 10% Operating income = Operating assets x ROI Operating income = $2,500,000 x 10% = $250,000 Operating income = Sales – Expenses = $5,000,000 – Expenses=$250,000 Expenses = $5,000,000 – $250,000 = $4,750,000 a. If expenses are reduced by $50,000, they would become $4,700,000. Accordingly, the net income will become $300,000 (i.e . , $5,000,000 – $4,700,000). ROI = $300,000 ÷ $2,500,000 = 12%
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Unformatted text preview: b. If both sales and expenses cannot be changed, the net income would remain at $300,000. To reach the same result of increasing ROI from 10 % to 12%, the investment base needs to be decreased. Operating income Operating assets = ROI $250,000 Operating assets = 12% Investment = $250,000 12% = $2,083,333 (rounded) The operating assets must be decreased from $2,500,000 to $2,083,333 to achieve 12% ROI. In other words, the investment base must be decreased by $416,667....
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This note was uploaded on 07/06/2009 for the course MGMT 303 taught by Professor Scott during the Spring '08 term at Agnes Scott College.

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