Question
E10-5 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets, Hurdle Rate on Each [LO 10-4, 10-5] Solano Company
E10-5 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets, Hurdle Rate on Each [LO 10-4, 10-5]
Solano Company has sales of $660,000, cost of goods sold of $450,000, other operating expenses of $53,000, average invested assets of $2,000,000, and a hurdle rate of 10 percent. Required: 1. Determine Solanos return on investment (ROI), investment turnover, profit margin, and residual income. (Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.) ROI: ___%
Investment Turnover: ___
Profit Margin: ___%
Residual Income (Lose): ___ 2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenarios impact on Solanos ROI and residual income. (Note: Treat each scenario independently.) (Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.)) a. Company sales and cost of goods sold increase by 30 percent.
ROI: ___
Residual Income(loss): ___% b. Operating expenses decrease by $17,500. ROI: ___
Residual Income(loss): ___% c. Operating expenses increase by 10 percent.
ROI: ___
Residual Income(loss): ___%
d. Average invested assets increase by $380,000.
ROI: ___
Residual Income(loss): ___%
e. Solano changes its hurdle rate to 16 percent.
ROI: ___
Residual Income(loss): ___%
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