Question

Hill Enterprises wants to replace two old assembly machines with one new, more efficient assembly machine. The old machines are valued at $57,000 each. The new machine will cost $100,000. If Hill’s controllable margin is $158,000 and their operating assets were valued at $600,000 before they bought the new machine, what will their new ROI be?

Answer 1

If Hill Enterprises wants to replace two old assembly machines with one new, more efficient assembly machine. The new ROI for Hill Enterprises will be 22.13%

What is the ROI?

To calculate the new Return on Investment (ROI) for Hill Enterprises, we need to use the formula:

ROI = Controllable Margin / Operating Assets

First let's calculate the operating assets before they bought the new machine:

Operating Assets = Value of old machines + Value of other assets

Operating Assets = 2 * $57,000 + $600,000

Operating Assets = $114,000 + $600,000

Operating Assets = $714,000

Now we can calculate the new ROI:

ROI = Controllable Margin / Operating Assets

ROI = $158,000 / $714,000

ROI =0.2213

ROI = 22.13%

Therefore the new ROI for Hill Enterprises will be 22.13%.

Answer 2

Return on investment after the purchase of the new machine: 24.57%

Step-by-step explanation:

Old machines: 57,000

New machine: 100,000

controllable margin (operating income): 100,000

operating assets: 600,000

less old machines (57,000)

add new machines 100,000

assets after purchase: 643,000

ROI: operating income/ assets

158,000 / 643,000 = 0,2457231726283 = 24.57%