Bryan Manufacturing had sales of $4,000,000 and net operating income of $700,000. Operating assets during the year averaged $600,000. The manager of Bryan is considering the purchase of a new machine which is expected to increase average operating assets by 8%. If the new machine is purchased, the company's new return on investment (ROI) would be:
A) 126.0%
B) 16.2%
C) 108.0%
D) 92.6%

Question

Quizplus · Accepted Answer

ROI = Net Operating Income / Average Operating Assets

ROI before purchase = $700,000 / $600,000 = 116.7%

ROI after purchase = $700,000 / ($600,000 * 1.08) = 108.0%

Therefore, the ROI would be 108.0% if the new machine is purchased, which is option (C).

Bryan Manufacturing Had Sales of $4,000,000 and Net Operating Income