1. Jen and Larrys frozen yogurt venture described in Assignment 6 required some investment in bricks and mortar. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown, referred to as LoDo, cost $450,000 at the beginning of 2020. At the same time, $50,000 was invested in inventories. In early 2021, an additional $100,000 was spent on equipment to support the increased frozen yogurt sales in 2021. Use information from Assignment 6 and this problem to answer the following questions.

A. Calculate the return on assets in both 2020 and 2021. Total Assets 2020 = Warehouse + Inventory = $450,000 + $50,000 = $500,000 Total Assets 2021 = Warehouse + Inventory + Additional Capital Expenditure = $450,000 + $50,000 + $100,000 = $600,000 Return on Assets (ROA) = Net Profit/Total Assets ROA for 2020 = 100,000/500,000 = 20% ROA for 2021 = 120,000/600,000 = 20%

B. Calculate the asset intensity or asset turnover ratios for 2020 and 2021. Asset Intensity = Assets Turnover = Revenues/Total Assets Asset Turnover Ratio for 2020 = 600,000/500,000 = 1.20 Asset Turnover Ratio for 2021 = 1,200,000/600,000 = 2.00

C. Apply the ROA Business Model to Jen and Larrys frozen yogurt venture. ROA Business Model = Net Profit Margin x Asset Turnover Ratio ROA for 2020 = 16.67% x 1.2 = 20% ROA for 2021 = 10% x 2.0 = 20%

D. Briefly describe what has occurred between the two years. The Returns on Assets were the same in the two years because the companys Net Profit Margins went down due to the increased operation expenses while Asset Intensity went up due to additional capital expenditure on equipment.