As the operations manager for Valley Kayaks (as described in the previous problem), you find yourself faced with an interesting situation. Marketing has informed you that they have lost a number of sales because of a lack of inventory. Kayaks, being seasonal in nature, have to be in stock at your dealers if they are to be sold (customers are not willing to wait). The director of marketing proposes that you increase inventories by 15 percent (a major investment to you). She has also given the information in the following table. Use Figure 2.3.

Category	Current Values			Proposed Impact of Inventory Increase
Sales	$	3,570,000			35	%	+ (improvement)
Cost of goods sold	$	2,550,000			0	%
Variable expenses	$	510,000			10	%	reduction
Fixed expenses	$	178,500			15	%	+ (increase)
Inventory	$	470,000			15	%	+
Accounts receivable	$	117,000			0	%
Other current assets	$	560,000			0	%
Fixed assets	$	555,000			0	%

a) Using the information given above what is the Total Return on Assets in PERCENT (%) for the Current Values column?

b) What would the NEW values be for the above table, given the proposed impact of inventory increase (NOT IN PERCENT!)?

c) What is the total Return on Assets for the NEW values (IN PERCENT %)?

d) Would the projected change in Return on Assets justify the inventory investment?