If the National Division of American Products Company had a turnover ratio of 4.2 and a margin of 0.10, the return on investment would be
A) 23.8%.
B) 420.0%.
C) 42.0%.
D) 238.0%.

Question

Quizplus · Accepted Answer

The return on investment (ROI) formula is:

ROI = Net Profit / Total Investment

Where Net Profit = Sales * Margin and Total Investment = Sales / Turnover Ratio

Here, the turnover ratio is 4.2 and the margin is 0.10. So,

Total Investment = Sales / Turnover Ratio = 1 / 4.2 = 0.238

Net Profit = Sales * Margin = 0.10 * 1 = 0.1

Therefore, ROI = Net Profit / Total Investment = 0.1 / 0.238 = 0.420 or 42.0%.

So, the correct answer is C) 42.0%.

If the National Division of American Products Company Had a Turnover