The income statement for Huerra Company for last year is provided below:

			Total			Unit
Sales			$	15,400,000		$	154.00
Less: Variable expenses				12,320,000			123.20
Contribution margin				3,080,000			30.80
Less: Fixed expense				1,540,000			15.40
Net operating income				1,540,000			15.40
Less: Income taxes @ 30%				462,000			4.62
Net income			$	1,078,000		$	10.78

The company had average operating assets of $14,000,000 during the year.

Required:

2.	Consider each of the following questions separately and then compute the new ROI figure. Indicate whether the ROI will increase, decrease, or remain unchanged as a result of the events described.

a.

c.	The company issues bonds and uses the proceeds to purchase machinery and equipment, thus increasing the average assets by $600,000. Interest on the bonds is $60,000 per year. Sales remain unchanged. The new more efficient equipment reduces fixed production costs by $30,000 per year. (Round intermediate and final answer to 2 decimal places.)

d.

e.	Obsolete items of inventory carried on the records at a cost of $80,000 are scrapped and sold for 25% of the book value. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

f.

The company uses $200,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $200,000 change in average operating assets. (Use full amount of scrap while calculating average operating assets. Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

g.