Waldron Inc. is considering selling to a group of new customers that will bring in sales of $15,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 5 to 1 between sales and accounts receivable. What is the return on investment?
A) 3%
B) 25%
C) 5%
D) none of the other answers are correct

Question

Quizplus · Accepted Answer

The return on investment (ROI) is calculated by dividing the return on sales by the accounts receivable turnover ratio. ROI = (Return on Sales) / (Accounts Receivable Turnover Ratio) = 5% / (1/5) = 25%.