Question

Solano Company has sales of $820,000, cost of goods sold of $530,000, other operating expenses of $60,000, average invested assets of $2,400,000, and a hurdle rate of 11 percent.


Required:
1. Determine Solano’s return on investment (ROI), investment turnover, profit margin, and residual income. (Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.)

Return on investment-

Investment turnover-

Profit Margin-

Residiual Income(loss)-

2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario’s impact on Solano’s ROI and residual income. (Note: Treat each scenario independently.) (Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.))

   a. Company sales and cost of goods sold increase by 30 percent.    

ROI-

Residual Income(loss)-

    b. Operating expenses decrease by $11,000.   

ROI-

Residual Income(loss)-

c. Operating expenses increase by 20 percent.

ROI-

Residual Income(loss)-

d. Average invested assets increase by $460,000.

ROI-

Residual Income(loss)-

e. Solano changes its hurdle rate to 16 percent.

ROI-

Residual Income(loss)-

        

Answer 1