Problem:
1. Omaha Company provides the following information:
|
Sales
|
$4,000,000
|
|
Net operating income
|
400,000
|
|
Average operating assets
|
1,600,000
|
Consider each question independently. Carry out all computations to two decimal places.
Required:
a) Compute the company's return on investment.
b) The owner is convinced that sales will increase next year by 150% and that net operating income will increase by 100%, with no increase in average operating assets. What would be the company's ROI?
c) The chief financial officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring a $400,000 increase in average operating assets, with a resulting $250,000 increase in net operating income. What would be the company's ROI in this situation?