Year 1 Year 2 Year 3 $ 9,000,000 945,000 Salcs $10,000,000 $ 9,500,000 Operating income Average assets 1,200,000 1,045,000 15,000,000 15,000,000 15,000,000

SWFT Comprehensive Volume 2019
42nd Edition
ISBN:9780357233306
Author:Maloney
Publisher:Maloney
Chapter24: Multistate Corporate Taxation
Section: Chapter Questions
Problem 26P
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Return on investment, Margin, Turnover

Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating results for the past 3 years are as follows.

For the coming year, Ready's president plans to install a JIT purchasing and manufacturing system. She estimates  that inventories will be reduced by 70 % during the first year of operations, producing a 20% reduction in the average operating assets of the company, which would remain unchanged without the JIT system.She also estimates that sales and operating income will be restored to Year  1 levels because of simultaneous reductions in operating expenses and selling prices. Lower selling prices will allow Ready to expand its market share.(Note : Round all numbers to two decimal places.)

Required :

1. Compute the ROI, margin, and turnover for Years 1, 2 and 3.

2. CONCEPTUAL CONNECTION Suppose that in year 4 the sales and opearting income were achieved as expected, but inventories remained at the same level as in Year 3. Compute the expected ROI , margin and turnover. Explain why the ROI increased over the Year 3 level. 

3. CONCEPTUAL CONNECTION Suppose that the sales and net operating income for Year 4 remained the same as in Year 3 but inventory reductions were achieved as projected.

Compute the ROI, margin and turnover . Explain why the ROI exceeded the Year 3 level.

4. CONCEPTUAL CONNECTION Assume that all expectations for Year 4  were realized. Compute the expected ROI, margin , and turnover. Explain why the ROI increased over the Year 3 level.

Year 1
Year 2
Year 3
$ 9,000,000
945,000
Salcs
$10,000,000
$ 9,500,000
Operating income
Average assets
1,200,000
1,045,000
15,000,000
15,000,000
15,000,000
Transcribed Image Text:Year 1 Year 2 Year 3 $ 9,000,000 945,000 Salcs $10,000,000 $ 9,500,000 Operating income Average assets 1,200,000 1,045,000 15,000,000 15,000,000 15,000,000
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