Shonrock International is considering a significant expansion to its product line.

The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings, but offer a complementary fit to its existing product line. Richard Farley, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Donna Beson, the company’s CFO, has provided the following projections based on results with and without the new products.

Without New Products With New Products Sales revenue $10,000,000 $16,000,000 Net income $500,000 $960,000 Average total assets $5,000,000 $12,000,000 Instructions

(a) Compute the company’s return on assets, profit margin, and asset turnover, both with and without the new product line.

(b) Discuss the implications that your findings in part

(a) have for the company’s decision.

AppendixLO1