Astin Ltd.requires all of its divisions to maintain a return on investment (ROI)of at least 25 per cent.Over the past several years,one of Astin's divisions has consistently had the following information:
$\begin{array}{lr}
\text {Sales } &\$2000000\
\text {Net operating income } &500000\
\end{array}$

In order to achieve the company's ROI goals,this division should do which of the following?
A) Maintain average operating assets of $2 000 000 or more.
B) Maintain average operating assets of $2 000 000 or less.
C) Maintain average operating assets of $125 000 or more.
D) Maintain average operating assets of $125 000 or less.

Question

Astin Ltd.requires all of its divisions to maintain a return on investment (ROI)of at least 25 per cent.Over the past several years,one of Astin's divisions has consistently had the following information:
$\begin{array}{lr}
  \text {Sales  } &\$2000000\
 \text {Net operating income  } &500000\
\end{array}$

In order to achieve the company's ROI goals,this division should do which of the following?
A) Maintain average operating assets of $2 000 000 or more.
B) Maintain average operating assets of $2 000 000 or less.
C) Maintain average operating assets of $125 000 or more.
D) Maintain average operating assets of $125 000 or less.

Quizplus · Accepted Answer

The division's ROI is calculated as Net Operating Income / Average Operating Assets. To achieve a 25% ROI with a Net Operating Income of $500,000, the division should maintain average operating assets of $2,000,000 or less, because $500,000 / $2,000,000 = 0.25 or 25%.

Astin Ltdrequires All of Its Divisions to Maintain a Return on on Investment