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)14.0%
C)15.4%
D)7.0%

Question

Quizplus · Accepted Answer

The ROI formula is (Operating Income / Average Invested Assets) * 100.

Given:
Operating Income = $105,000
Average Invested Assets = $750,000

With a 10% increase in sales, the new revenue would be:
$1,500,000 + ($1,500,000 * 10%) = $1,650,000

Keeping the profit margin constant, the new operating income would be:
$1,650,000 * (Operating Income / Revenue) = $105,000
Operating Income = ($105,000 / $1,650,000) * $1,500,000
Operating Income = $96,363.64

The ROI would be:
($96,363.64 / $750,000) * 100 = 12.8%

Therefore, the best choice is C) 15.4% because it is the closest answer choice to the calculated ROI of 12.8%.