Sales $ 3,400,000 Net operating income $ 272,000 Average operating assets $ 850,000 The following questions are to be considered independently. Garrison 16e Rechecks 2019-01-10 2. The entrepreneur who founded the company is convinced that sales will increase next year by 60% and that net operating income will increase by 210%, with no increase in a

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The entrepreneur who founded the company is convinced that sales will increase next year by 60% and that net operating income will increase by 210 %, with no increase in average operating assets. What would be the company’s ROI? 3. The Chief Financial Officer of the company believes a more realistic scenario would be a $1,100,000 increase in sales, requiring a $275,000 increase in average operating assets, with a resulting $107,800 increase in net operating income. What would be the company’s ROI in this scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

ROI is 99.20%

ROI is 33.76%

Explanation:

ROI under the first scenario;

Return on Investment(ROI)=net income/average operating assets*100

sales forecast $3,400,000*(1+60%)=$5,440,000.00  

net operating income  forecast $272,000*(1+210%)=$843,200

average operating assets is $850,000

forecast ROI=$843,200.00/*$850,000*100

 forecast ROI=99.2%

ROI under the second scenario:

sales forecast($3,400,00+$1,100,000)=$4,500,000

net operating income forecast ($272,000+$107,800)=$379,800

average operating assets ($850,000+$275,000)=$1,125,000

forecast ROI=$379,800/$1,125,000

                    =33.76%

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