Hardcastle Ltd.had sales of $3 000 000 and net operating income of $800 000.Operating assets during the year averaged $1 500 000.The manager of Hardcastle is considering the purchase of a new machine which is expected to increase average operating assets by 5 per cent.If the new machine is purchased,the company's new return on investment (ROI)would be:
A) 190.5 per cent
B) 52.5 per cent
C) 196.9 per cent
D) 50.8 per cent

Question

Quizplus · Accepted Answer

The current ROI is calculated as net operating income divided by average operating assets, which is $800,000 / $1,500,000 = 53.3%. With the purchase of the new machine, the operating assets increase by 5%, making them $1,575,000 ($1,500,000 * 1.05). Assuming net operating income remains the same ($800,000), the new ROI would be $800,000 / $1,575,000 = 50.8%.