James Garage Ltd is a high end tire and rim sales company with installation and repair facilities. The following information can be obtained from the company's financial statements. James Garage Ltd TURNOVER/SALES COST OF SALES Variable costs Purchased goods and materials Variable salaries Other variable costs Operating profit Fixed costs Administration and sales Production and product development Rents (office, production hall) Other fixed costs Profit / earnings FINANCIAL ASSETS FIXED ASSETS CURRENT ASSETS Tires Rims Accessories Other materials 1 800 000,00 1 050 000,00 140 000,00 10 000,00 600 000,00 150 000,00 160 000,00 80 000,00 10 000,00 200 000,00 200 000,00 700 000,00 560 000,00 420 000,00 85 000,00 25 000,00 Required 1) Calculate the ROI (return on investment) based on the above information. 2) After developing purchasing methods the company is able to save 5% from goods and materials. What is the impact on ROI? 3) What kind of increase in sales would be required to have the same level of improvement in ROI? Please note that variable costs are 2/3 from sales and fixed costs stay on the same level despite the change in sales. 4) The company will be able to rationalize its purchasing and will be able to enter into annual contracts with local suppliers and makes an agreement on fast deliveries. The new method will halve the inventories. a) What is the ROI in this case? b) What is the increase in sales required for a similar change (see task 3)?