Asked by Sheryar Gillani on Apr 29, 2024
Verified
Salvey Inc.reported the following results from last year's operations: The company's average operating assets were $3,000,000. At the beginning of this year, the company has a $300,000 investment opportunity that involves sales of $480,000, fixed expenses of $100,800, and a contribution margin ratio of 30% of sales.
If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROI for the entire company will be closest to:
A) 16.6%
B) 1.3%
C) 18.2%
D) 15.3%
Contribution Margin Ratio
The proportion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs.
Fixed Expenses
Costs that remain constant for a period of time regardless of production levels or business activity.
Combined ROI
The total return on investment generated from a set of investments or projects, combined into a single measure.
- Assess the financial returns of investment for specific business contexts.
- Review the total impact of assorted investment options on the overall efficacy of the company.
Verified Answer
Average operating assets = $3,000,000 + $300,000 = $3,300,000
ROI = Net operating income ÷ Average operating assets = $547,200 ÷ $3,300,000 = 16.6%
Learning Objectives
- Assess the financial returns of investment for specific business contexts.
- Review the total impact of assorted investment options on the overall efficacy of the company.
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