Return on Investment Assignment | Homework For You
May 25th, 2020
| The income statement for Huerra Company for last year is provided below: |
| Total | Unit | |||||||
| Sales | $ | 15,400,000 | $ | 154.00 | ||||
| Less: Variable expenses | 12,320,000 | 123.20 | ||||||
| Contribution margin | 3,080,000 | 30.80 | ||||||
| Less: Fixed expense | 1,540,000 | 15.40 | ||||||
| Net operating income | 1,540,000 | 15.40 | ||||||
| Less: Income taxes @ 30% | 462,000 | 4.62 | ||||||
| Net income | $ | 1,078,000 | $ | 10.78 | ||||
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| The company had average operating assets of $14,000,000 during the year. |
| Required: |
| 2. | Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described. |
| a. | |
| c. | The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $600,000. Interest on the bonds is $60,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by $30,000 per year. (Round intermediate and final answer to 2 decimal places.) |
| d. | |
| e. | Obsolete items of inventory carried on the records at a cost of $80,000 are scrapped and sold for 25% of the book value. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) |
| f. | The company uses $200,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $200,000 change in average operating assets. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)Get Finance homework help today |
