Grove Corp.has revenues of $1,500,000 resulting in an operating income of $105,000.Average invested assets total $750,000.Calculate the ROI if sales increase by 10% and the profit margin and investment level remain constant.
A)7.7%
B)14%
C)15.4%
D)7.0%

Question

Quizplus · Accepted Answer

Current ROI = Operating income / Average invested assets = $105,000 / $750,000 = 14%
After a 10% increase in sales, the new revenue would be $1,650,000 ($1,500,000 x 1.1). Assuming the profit margin and investment level remain constant, the new operating income would be $115,500 ($1,650,000 x 7%). 
The new ROI would be: 
New ROI = New operating income / Average invested assets 
New ROI = $115,500 / $750,000 
New ROI = 15.4% 
Therefore, the correct answer is C (15.4%).