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The Following Information Is Available About the Status and Operations

Question 111

Essay

The following information is available about the status and operations for Division B of Boxwood Company, which has a minimum required ROI of 20%. Answer each item independently of the others.
 Division B  Divisional investment $1,500,000 Divisional profit $550,000 Divisional sales $3,600,000\begin{array} { l r } & \text { Division B } \\\text { Divisional investment } & \$ 1,500,000 \\\text { Divisional profit } & \$ 550,000 \\\text { Divisional sales } & \$ 3,600,000\end{array}
Required:
a. Compute the ROI for Division B.
b. Division B could increase its profit by $25,000 by increasing its investment by $100,000. Compute its new ROI.
c. Division B could increase its profit margin ratio by one percentage point (for example: from 13% to 14%), without increasing total sales or investment. Compute its new ROI.
d. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

Correct Answer:

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a. $550,000/$1,500,000 = 36.67%.
b. ($55...

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