Question

Pierre's Ice Cream Company produces ultra-rich ice cream, which it sells in Cleveland, Ohio, and other neighboring places. Last year, its actual return on investment exceeded its target return on investment (ROI) for that fiscal year. The following results were found on its financial statements: Gross revenues: $250,000 Total assets: $500,000 Gross profits: $100,000 Total liabilities: $200,000 Net profits after tax: $ 50,000 Owner's equity: $300,000 What was the actual ROI for Pierre's Ice Cream Company?

Answer 1

The actual return on investment was 16.67%

Step-by-step explanation:

the Return on Investment, will be the net income copared with the own funds (equity). So, we will compare the 50,000 net income with the owner's equity 300,000

50,000/300,000 = 0.1667 = 16.67%

The return on investment is 16.67% This means for every dollar of equity the comany earn 16.67 cent

It also means the company will return their entire investment in:

1/ROI = 1/0.166666 = 6 years