1 answer

The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses...

Question:

The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses Total $43,200,000 25,92. Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will incC. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets bye. Obsolete items of inventory carried on the records at a cost of $170,000 are scrapped and sold for 15% of the book value.

The income statement for Huerra Company for last year is provided below: Sales Less: Variable expenses Total $43,200,000 25,920,000 Unit $432.00 259.20 Contribution margin Less: Fixed expense 17,280,000 8,640,000 172.80 86.40 Net operating income Less: Income taxes @ 30% 8,640,000 2,592,000 86.40 25.92 Net income $ 6,048,000 $ 60.48 The company had average operating assets of $18,000,000 during the year. Required: 1. Compute the company's ROI for the period using the ROI formula stated in terms of margin and turnover. (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).) ROI
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. a. By using JIT, the company is able to reduce the average level of inventory by $300,000. (The released funds are used to pay off short-term creditors.) (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).) ROI % b. The company achieves a savings of $22 per unit by using cheaper materials. (Round intermediate and final answer to 2 decimal places.) ROI
C. The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $200,000. Interest on the bonds is $20,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by $10,000 per year. (Round intermediate and final answer to 2 decimal places.) ROI % d. As a result of a more intense effort by the sales staff, sales are increased by 20%; operating assets remain unchanged. (Round intermediate and final answer to 2 decimal places.)
e. Obsolete items of inventory carried on the records at a cost of $170,000 are scrapped and sold for 15% 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).) ROI f. The company uses $600,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $600,000 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).) ROI 이이

Answers

Return On Investment ( ROI)
= Net Income / Average Operating Assets
Answers:
1) =$6048000/18000000
33.60%
2)
a)
Revised Average Operating Assets =$18000000-300000 =$17700000
ROI = $6048000/17700000
34.17%
b) Saving $22 per unit
Number Of Units = $43200000/432
=100000 Units
Revised Net Income = $6048000 + [100000 units *22* (1-0.30)]
=6048000+1540000
$           75,88,000
ROI = $7588000/$18000000
42.16%
c)
Revised Average Asset = $18000000+200000
$       1,82,00,000
Revised Net Income = $6048000-[(20000-10000)*(1-0.3)
$           60,41,000
ROI = $6041000/18200000
33.19%
d Revised Net Income = $6048000+ [(17280000*20%)*(1-0.3)
$           84,67,200
ROI = $8467200/18000000
47.04%
e) Revised Net Income = $6048000 - [(170000*85%)*(1-0.3)
$           59,46,850
ROI = $5946850/18000000
33.04%
f) Revised Operating Assets
=$18000000-600000
$       1,74,00,000
ROI = $6048000/17400000
34.76%

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