Knitpix Products is a division of Parker Textiles, Inc. During the coming year, it expects to earn an operating profit of $310,000 based on sales of $3.45 million; without any new investments, the division will have an average net operating asset of $3 million. The division is considering a capital investment project adding knitting machines to produce gaiters that would increase operating profit by $57,500 (sales would increase by $575,000). If made, the investment would increase beginning net operating assets by $600,000 and ending net operating assets by $400,000. Assume that the minimum rate of return required by the company is 7 percent.

(Note: Invested capital is defined as equal to average net operating asset

1. Assume that a JIT purchasing and manufacturing system is installed, reducing average operating assets by $800,000.

(i) Compute the ROI for the division with and without the investment under this new scenario. (Round off answers to 2 decimal places) (4 marks)

(ii) Now do you think the divisional manager will accept the new investment? Should he accept it? Explain your answer. (2 marks)

2. Refer to Requirement 5:

(i) Compute the return on sales ratio without the investment. (Round off answers to 2 decimal places) (2 marks)

(i) Compute the investment turnover ratio without the investment. (Round off answers to 2 decimal places)