Problem 4 (R ulati ying Knix Products is a division of Park Textiles, Inc. During the coming year, it a net operating income of P310,000 based on sales of P3.45million; without any new investments, the division will have average net expects to earn Th dvicion ic considering a canital investment :11:
Problem 4 (R ulati ying Knix Products is a division of Park Textiles, Inc. During the coming year, it a net operating income of P310,000 based on sales of P3.45million; without any new investments, the division will have average net expects to earn Th dvicion ic considering a canital investment :11:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Problem 4 (ROI Calculations with Varying Assumptions)
Knix Products is a division of Park Textiles, Inc. During the coming year, it
expects to earn a net operating income of P310,000 based on sales of
P3.45million; without any new investments, the division will have average net
operating assets of P3 million. The division is considering a capital investment
project- adding knitting machines to produce gaiters - that requires an additional
investment of P600,000 and increases net operating income by P57,500 (sales
would increase by P575,000). If made, the investment would increase beginning
net operating assets by P600,000 and ending net operating assets by P400,000.
Assume that the minimum rate of return required by the company is 7 percent.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff1062d37-8fcc-427e-b0fa-c3d15de7742e%2F117e64cc-6c89-46b4-ae73-8de64b1e59a3%2F9x9gvdu_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 4 (ROI Calculations with Varying Assumptions)
Knix Products is a division of Park Textiles, Inc. During the coming year, it
expects to earn a net operating income of P310,000 based on sales of
P3.45million; without any new investments, the division will have average net
operating assets of P3 million. The division is considering a capital investment
project- adding knitting machines to produce gaiters - that requires an additional
investment of P600,000 and increases net operating income by P57,500 (sales
would increase by P575,000). If made, the investment would increase beginning
net operating assets by P600,000 and ending net operating assets by P400,000.
Assume that the minimum rate of return required by the company is 7 percent.
![5. Assume that a JIT purchasing and manufacturing system is installed,
investment. Compare these with the old ratios.
, Compute the margin and turnover ratios for the division with the new
Assume that a JIT purchasing and manufacturing system is installed,
reducing average operating assets by P800,000. Compute the ROI with
and without the investment under this new scenario. Now do you think
the divisional manager will accept the new investment? Should he accept
it? Explain your answer.
6. Refer to Requirement 5. Compute the margin and turnover ratios without
the investment. Use these ratios to explain why the ROI increases.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff1062d37-8fcc-427e-b0fa-c3d15de7742e%2F117e64cc-6c89-46b4-ae73-8de64b1e59a3%2Fjr9o9ao_processed.jpeg&w=3840&q=75)
Transcribed Image Text:5. Assume that a JIT purchasing and manufacturing system is installed,
investment. Compare these with the old ratios.
, Compute the margin and turnover ratios for the division with the new
Assume that a JIT purchasing and manufacturing system is installed,
reducing average operating assets by P800,000. Compute the ROI with
and without the investment under this new scenario. Now do you think
the divisional manager will accept the new investment? Should he accept
it? Explain your answer.
6. Refer to Requirement 5. Compute the margin and turnover ratios without
the investment. Use these ratios to explain why the ROI increases.
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