Problem 9-20A Return on investment Sorrento Corporation's 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 a. Compute Sorrento's profit margin for Year 2. b. Compute Sorrento's turnover for Year 2. c. Compute Sorrento’s return on investment for Year 2. d. Recompute Sorrento’s ROI under each of the following independent assumptions: (1) (2) (3) Sales increase from $1,000,000 to $1,200,000, thereby resulting in an increase in operating income from $50,000 to $56,000. Sales remain constant, but Sorrento reduces expenses, resulting in an increase in operating income from $50,000 to $52,000. Sorrento is able to reduce its invested capital from $500,000 to $400,000 without affecting operating income.
Problem 9-20A Return on investment Sorrento Corporation's 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 a. Compute Sorrento's profit margin for Year 2. b. Compute Sorrento's turnover for Year 2. c. Compute Sorrento’s return on investment for Year 2. d. Recompute Sorrento’s ROI under each of the following independent assumptions: (1) (2) (3) Sales increase from $1,000,000 to $1,200,000, thereby resulting in an increase in operating income from $50,000 to $56,000. Sales remain constant, but Sorrento reduces expenses, resulting in an increase in operating income from $50,000 to $52,000. Sorrento is able to reduce its invested capital from $500,000 to $400,000 without affecting operating income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need help with 9-20A, d1-3
Transcribed Image Text:Problem 9-20A Return on investment
Sorrento Corporation's 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
a. Compute Sorrento's profit margin for Year 2.
b. Compute Sorrento's turnover for Year 2.
c. Compute Sorrento’s return on investment for Year 2.
d. Recompute Sorrento’s ROI under each of the following independent assumptions:
(1)
(2)
(3)
Sales increase from $1,000,000 to $1,200,000, thereby resulting in an increase in operating income from $50,000 to $56,000.
Sales remain constant, but Sorrento reduces expenses, resulting in an increase in operating income from $50,000 to $52,000.
Sorrento is able to reduce its invested capital from $500,000 to $400,000 without affecting operating income.
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