Sales and average operating assets for Company P and Company Q are given below:
$\begin{array}{|l|r|r|}
\hline & \text { Sales Average } & \text { Operating Assets } \
\hline \text { Company P } & \$ 20,000 & \$ 8,000 \
\hline \text { Company Q } & \$ 50,000 & \$ 10,000 \
\hline
\end{array}$
What is the margin that each company (Company P and Company Q,respectively)will have to earn in order to generate a return on investment of 20%?
A) 2.5% and 5%.
B) 8% and 4%.
C) 12% and 16%.
D) 50% and 100%.

Question

Quizplus · Accepted Answer

To achieve a 20% return on investment (ROI), each company must earn a profit that is 20% of its operating assets. For Company P, this is $8,000 * 20% = $1,600. For Company Q, it's $10,000 * 20% = $2,000. The margin is calculated as the required profit divided by sales. For Company P, it's $1,600 / $20,000 = 8%. For Company Q, it's $2,000 / $50,000 = 4%.

Sales and Average Operating Assets for Company P and Company