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

Total Unit

Sales $28,900,000 $289.00

Less: Variable expenses 17,340,000 173.40

Contribution margin 11,560,000 115.60

Less: Fixed expense 5,780,000 57.80

Net operating income 5,780,000 57.80

Less: Income taxes @ 30% 1,734,000 17.34

Net income $4,046,000 $40.46

The company had average operating assets of $17,000,000 during the year.

1.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.Obsolete items of inventory carried on the records at a cost of $100,000 are scrapped and sold for 10% 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).)

b.The company uses $300,000 in cash (received on accounts receivable) to repurchase and retire some of its common shares. The net effect of this transaction is a $300,000 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).)