Pecs Alley is a regional chain of health clubs. The managers of the clubs, who have authority to makeinvestments as needed, are evaluated based largely on return on investment (ROI). The Springfield Clubreported the following results for the past year:Sales .................................................................................. $1,400,000Net operating income ......................................................... $70,000Average operating assets ................................................... $350,000Required:The following questions are to be considered independently. Carry out all computations to two decimalplaces.1. Compute the club’s return on investment (ROI).2. Assume that the manager of the club is able to increase sales by $70,000 and that, as a result, netoperating income increases by $18,200. Further assume that this is possible without any increase inoperating assets. What would be the club’s return on investment (ROI)?3. Assume that the manager of the club is able to reduce expenses by $14,000 without any change insales or operating assets. What would be the club’s return on investment (ROI)?4. Assume that the manager of the club is able to reduce operating assets by $70,000 without any changein sales or net operating income. What would be the club’s return on investment (ROI)?
Pecs Alley is a regional chain of health clubs. The managers of the clubs, who have authority to make
investments as needed, are evaluated based largely on
reported the following results for the past year:
Sales .................................................................................. $1,400,000
Net operating income ......................................................... $70,000
Average operating assets ................................................... $350,000
Required:
The following questions are to be considered independently. Carry out all computations to two decimal
places.
1. Compute the club’s return on investment (ROI).
2. Assume that the manager of the club is able to increase sales by $70,000 and that, as a result, net
operating income increases by $18,200. Further assume that this is possible without any increase in
operating assets. What would be the club’s return on investment (ROI)?
3. Assume that the manager of the club is able to reduce expenses by $14,000 without any change in
sales or operating assets. What would be the club’s return on investment (ROI)?
4. Assume that the manager of the club is able to reduce operating assets by $70,000 without any change
in sales or net operating income. What would be the club’s return on investment (ROI)?
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