Question
Sorrento Corporations balance sheet indicates that the company has $500,000 invested in operating assets. During Year 2, Sorrento earned operating income of $50,000 on $1,000,000
Sorrento Corporations balance sheet indicates that the company has $500,000 invested in operating assets. During Year 2, Sorrento earned operating income of $50,000 on $1,000,000 of sales. Required Compute Sorrentos profit margin for Year 2. Compute Sorrentos turnover for Year 2. Compute Sorrentos return on investment for Year 2. Recompute Sorrentos ROI under each of the following independent assumptions: (1) Sales increase from $1,000,000 to $1,200,000, thereby resulting in an increase in operating income from $50,000 to $56,000. (2) Sales remain constant, but Sorrento reduces expenses, resulting in an increase in operating income from $50,000 to $52,000. (3) Sorrento is able to reduce its invested capital from $500,000 to $400,000 without affecting operating income.
Compute Sorrento's profit margin, turnover and return on investment for Year 2. Recompute Sorrento's ROI under each of the following independent assumptions: Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places. (i.e., 0.2345 should be entered as 23.45). (1) Sales increase from $1,000,000 to $1,200,000, thereby resulting in an increase in operating income from $50,000 to $56,000 (2) Sales remain constant, but Sorrento reduces expenses, resulting in an increase in operating income from $50,000 to $52,000. (3) Sorrento is able to reduce its invested capital from $500,000 to $400,000 without affecting operating incomeStep by Step Solution
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