A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows:

Sales$1,575,000Cost of goods sold891,000Gross profit$684,000Operating expenses558,000Income from operations$126,000Invested assets$1,050,000

Assume that the Electronics Division received no cost allocations from service departments.

The president of Gihbli Industries Inc. has indicated that the division's return on a $1,050,000 investment must be increased to at least 20% by the end of the next year if operations are to continue. The division manager is considering the following three proposals:

Proposal 1: Transfer equipment with a book value of $300,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $31,400. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged.

Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $180,000, reduce cost of goods sold by $119,550, and reduce operating expenses by $60,000. Assets of $112,500 would be transferred to other divisions at no gain or loss.

Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $189,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $918,750 for the year.

Required:

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1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. If required, round your answers to one decimal place.

Electronics DivisionProfit marginfill in the blank 216172fdb050fc7_1% Investment turnoverfill in the blank 216172fdb050fc7_2 ROIfill in the blank 216172fdb050fc7_3%

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2. Prepare condensed estimated income statements and compute the invested assets for each proposal.

Proposal 1Proposal 2Proposal 3Sales$fill in the blank 186320f6507bf96_1$fill in the blank 186320f6507bf96_2$fill in the blank 186320f6507bf96_3Cost of goods soldfill in the blank 186320f6507bf96_4fill in the blank 186320f6507bf96_5fill in the blank 186320f6507bf96_6Gross profit$fill in the blank 186320f6507bf96_7$fill in the blank 186320f6507bf96_8$fill in the blank 186320f6507bf96_9Operating expensesfill in the blank 186320f6507bf96_10fill in the blank 186320f6507bf96_11fill in the blank 186320f6507bf96_12Income from operations$fill in the blank 186320f6507bf96_13$fill in the blank 186320f6507bf96_14$fill in the blank 186320f6507bf96_15Invested assets$fill in the blank 186320f6507bf96_16$fill in the blank 186320f6507bf96_17$fill in the blank 186320f6507bf96_18

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3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round investment turnover and percentages to one decimal place.

ProposalProfit marginInvestment turnoverROIProposal 1fill in the blank 46aef707204af86_1%fill in the blank 46aef707204af86_2fill in the blank 46aef707204af86_3%Proposal 2fill in the blank 46aef707204af86_4%fill in the blank 46aef707204af86_5fill in the blank 46aef707204af86_6%Proposal 3fill in the blank 46aef707204af86_7%fill in the blank 46aef707204af86_8fill in the blank 46aef707204af86_9%

4. Which of the three proposals would meet the required 20% return on investment?

Proposal 1 Proposal 2 Proposal 3

5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 20% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. fill in the blank 46aef707204af86_13%