The management of PaperPlus, a paperboard manufacturer, expects a return of 20% on investments. The company currently
Question:
The management of PaperPlus, a paperboard manufacturer, expects a return of 20% on investments.
The company currently has total assets of \($10,000,000,\) earns a contribution margin of 60% on sales, has variable costs of \($3,000,000\) and reports profits of \($2,000,000.\) The manager is considering acquiring another factory, which will increase sales by 40% and will maintain a 60% contribution margin on sales. Fixed costs for the new factory will be \($1,000,000.\) What is the maximum amount of investment the company should make in the new factory in order to meet its ROI expectation?
a. $2,800,000
b. $4,000,000
c. $15,000,000
d. None of the above
Step by Step Answer:
Accounting For Managers Interpreting Accounting Information For Decision Making
ISBN: 9781118037966
1st Canadian Edition
Authors: Paul M. Collier, Sandy M. Kizan, Eckhard Schumann