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 $780,000, cost of goods sold of $510,000, other operating expenses of $38,000, average invested assets of $2,300,000, and a hurdle rate of 12 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 ) Return on Investment Investment Turnover Profit Margin Residual Income (Loss) 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 Return on Investment Residual Income (Loss) b Operating expenses decrease by $12,000 Return on Investment Residual Income (Loss) c Operating expenses increase by 10 percent Return on Investment Residual Income (Loss) d Average invested assets increase by $440,000 Return on Investment Residual Income (Loss) e Solano changes its hurdle rate to 18 percent Return on Investment Residual Income (Loss)

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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 $780,000, cost of goods sold of $510,000, other operating expenses of $38,000, average invested assets of $2,300,000, and a hurdle rate of 12 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.)


Return on Investment		%
Investment Turnover
Profit Margin		%
Residual Income (Loss)

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.