Criner Inc. reported the following results from last year's operations:Sales$16,100,000Variable expenses12,330,000Contribution margin3,770,000Fixed expenses3,126,000Net operating income$644,000Average operating assets$7,000,000At the beginning of this year, the company has a $1,800,000 investment opportunity with the following characteristics:Sales$1,980,000 ?Contribution margin ratio30%of salesFixed expenses$475,200 ?Required:1. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.)2. If the company pursues the investment opportunity and otherwise performs the same as last year, what will be the overall ROI will this year? (Round to the nearest 0.1%.)
What will be an ideal response?
1. Last year's ROI = Net operating income ÷ Average operating assets = $644,000 ÷ $7,000,000 = 9.2%
2. If the company pursues the investment opportunity and otherwise performs the same as last year, the ROI will be:
| The investment opportunity's net operating income: | |
| Contribution margin (30% × $1,980,000) | $594,000 |
| Fixed expenses | 475,200 |
| Net operating income | $118,800 |
Average operating assets = $7,000,000 + $1,800,000 = $8,800,000
ROI = Net operating income ÷ Average operating assets = $762,800 ÷ $8,800,000 = 8.7%
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