Effects of Changes in Sales, Expenses, and Assets on ROI [LO1]

BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

Sales . . . . . . . . . . . . . . . . . . . . . . . . $8,000,000 Net operating income . . . . . . . . . . . . $800,000 Average operating assets . . . . . . . . . $3,200,000 Required:

Consider each question below independently. Carry out all computations to two decimal places.

1. Compute the company’s return on investment (ROI).

2. The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets. What would be the company’s ROI?

3. The Chief Financial Officer of the company believes a more realistic scenario would be a

$2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income. What would be the company’s ROI in this scenario?