CommercialServices.com Corporation provides business-to-business services on the
ID: 2389164 • Letter: C
Question
CommercialServices.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:
Sales $3,000,000
Net operating income $150,000
Average operating assets $750,000
Consider each of the following requirements independently.
Requirement 1:
Compute the company's return on investment (ROI).
Return on investment % ?
Requirement 2:
The entrepreneur who founded the company is convinced that sales will increase next year by 50% and that net operating income will increase by 200%, with no increase in average operating assets. What would be the company's ROI?
Return on investment % ?
Requirement 3:
The chief financial officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring an $250,000 increase in average operating assets, with a resulting $200,000 increase in net operating income. What would be the company's ROI in this scenario?
Return on investment %?
Explanation / Answer
Requirement 1:
Compute the company's return on investment (ROI).
Return on investment % =Net operating income/Average operating assets*100
150000/750000*100=20%
Requirement 2:
The entrepreneur who founded the company is convinced that sales will increase next year by 50% and that net operating income will increase by 200%, with no increase in average operating assets. What would be the company's ROI?
Net operating income=150000+200%=$450000
Return on investment % =Net operating income/Average operating assets*100
450000/750000*100=60%
Requirement 3:
The chief financial officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring an $250,000 increase in average operating assets, with a resulting $200,000 increase in net operating income. What would be the company's ROI in this scenario?
net operating income=150000+200000=$350000
average operating assets=750000+250000=$1000000
Return on investment % =Net operating income/Average operating assets*100
350000/1000000*100=35%