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

Sales	$4,080,000
Cost of goods sold	3,213,800
Gross profit	$ 866,200
Operating expenses	499,000
Income from operations	$ 367,200
Invested assets	$3,400,000

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

The president of Gihbli Industries Inc. has indicated that the divisions return on a $3,400,000 investment must be increased to at least 12.6% 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 $680,000 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 $122,400. 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 $722,500, reduce cost of goods sold by $482,800, and reduce operating expenses by $212,500. Assets of $1,721,400 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 $448,800 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 $1,700,000 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. Round your answers to one decimal place.

	Electronics Division
Profit margin
Investment turnover
ROI

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

Gihbli Industries Inc.Electronics Division Estimated Income Statements For the Year Ended December 31

	Proposal 1	Proposal 2	Proposal 3
Sales	$fill in the blank 58690e0a7047061_1	$fill in the blank 58690e0a7047061_2	$fill in the blank 58690e0a7047061_3
Cost of goods sold	fill in the blank 58690e0a7047061_4	fill in the blank 58690e0a7047061_5	fill in the blank 58690e0a7047061_6
Gross profit	$fill in the blank 58690e0a7047061_7	$fill in the blank 58690e0a7047061_8	$fill in the blank 58690e0a7047061_9
Operating expenses	fill in the blank 58690e0a7047061_10	fill in the blank 58690e0a7047061_11	fill in the blank 58690e0a7047061_12
Income from operations	$fill in the blank 58690e0a7047061_13	$fill in the blank 58690e0a7047061_14	$fill in the blank 58690e0a7047061_15
Invested assets	$fill in the blank 58690e0a7047061_16	$fill in the blank 58690e0a7047061_17	$fill in the blank 58690e0a7047061_18

Question Content Area

3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place.

Proposal	Profit Margin	Investment Turnover	ROI
Proposal 1	fill in the blank 9c7b2f00cf8b06b_1%	fill in the blank 9c7b2f00cf8b06b_2	fill in the blank 9c7b2f00cf8b06b_3%
Proposal 2	fill in the blank 9c7b2f00cf8b06b_4%	fill in the blank 9c7b2f00cf8b06b_5	fill in the blank 9c7b2f00cf8b06b_6%
Proposal 3	fill in the blank 9c7b2f00cf8b06b_7%	fill in the blank 9c7b2f00cf8b06b_8	fill in the blank 9c7b2f00cf8b06b_9%

4. Which of the three proposals would meet the required 12.6% 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 12.6% 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 9c7b2f00cf8b06b_13%