Canedo Inc.reported the following results from last year's operations: At the beginning of this year, the company has a $700,000 investment opportunity with the following characteristics: If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:
A)2.98
B)17.01
C)2.53
D)2.04

Question

Canedo Inc.reported the following results from last year's operations:  At the beginning of this year, the company has a $700,000 investment opportunity with the following characteristics:  If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:
A)2.98 
B)17.01 
C)2.53 
D)2.04

Quizplus · Accepted Answer

To calculate the combined turnover for the entire company, we need to add the turnover from last year's operations to the turnover generated by the investment opportunity.

Turnover from last year's operations = $11,000,000 
Turnover generated by the investment opportunity = $700,000 x 3.6 = $2,520,000

Therefore, the combined turnover for the entire company = $11,000,000 + $2,520,000 = $13,520,000

Now, we need to divide this combined turnover by the amount of Canedo's assets to see if the company is using its assets efficiently.

Total assets = $5,000,000

Asset turnover ratio = Combined turnover / Total assets = $13,520,000 / $5,000,000 = 2.704

Therefore, the closest answer is C) 2.53. Sales = $9,600,000 + $2,310,000 = $11,910,000
Average operating assets = $4,000,000 + $700,000 = $4,700,000
Turnover = Sales ÷ Average operating assets = $11,910,000 ÷ $4,700,000 = 2.53