Return on Investment Assignment | Homework For You

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.


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.



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.)




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

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