Lymen International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring.
The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line.
Fred Riddick, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products.
Barbara Dyson, the company's CFO, has provided the following projections based on results with and without the new products.
|
|
Without New Products
|
|
With New Products
|
| Sales |
|
$10,000,000 |
|
$16,000,000 |
| Net income |
|
$500,000 |
|
$960,000 |
| Average total assets |
|
$5,000,000 |
|
$12,000,000 |
|
|
Without new products
|
|
With new products
|
| Return on assets |
|
10% |
|
8% |
| Profit margin |
|
5% |
|
6% |
| Asset turnover |
|
2.0 |
|
1.3 |
Discuss the implications of the above given ratios would have for the company's decision below