Parsa Inc. reported the following results from last years operations: Sales Vari

Question

Parsa Inc. reported the following results from last years operations: Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets 7,000,000 $14,000,000 9,500,000o 4,500,000 3,800,000 s700,000 At the beginning of this year, the company has a $1,100,000 investment opportunity with the following characteristics $1,980,000 Sales Contribution margin ratio Fixed expenses 40% of sales 653,400 If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROl fo closest to: Multiple Choice

Explanation / Answer

Calculate combined ROI :

Investment opportunity Net income = (1980000*40%-653400) = 138600

Total net income = (138600+700000) = 838600

Average operating assets = (7000000+1100000) = 8100000

ROI = Net income*100/average operating assets

= 838600*100/8100000

ROI = 10.4%

so answer is c) 10.4%

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