Question

Largo Company recorded for the past year sales of $414,400 and average operating assets of $259,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 28.8%?

A. 18.00%
B. 1.60%
C.28.80%
D. 3.47%

Answer 1

To achieve a Return on Investment (ROI) of 28.8% with average operating assets of $259,000, the margin Largo Company needed was 18.00%.

Step-by-step explanation:

To calculate the margin that Largo Company needed to achieve a Return on Investment (ROI) of 28.8%, we use the formula for ROI, which is:

ROI = (Net Operating Profit / Average Operating Assets) × 100

We have the ROI (28.8%) and the average operating assets ($259,000), but we need to find the Net Operating Profit. Let's rearrange the formula to solve for it:

Net Operating Profit = (ROI × Average Operating Assets) / 100

Net Operating Profit = (28.8% × $259,000) / 100

Net Operating Profit = $74,592

Now, to find the margin (Net Operating Profit/Sales), we plug in the Net Operating Profit and the sales:

Margin = (Net Operating Profit / Sales) × 100

Margin = ($74,592 / $414,400) × 100

Margin = 18.00%

Therefore, the correct option is A. 18.00%.

Answer 2

A. 18.00%

Step-by-step explanation:

In this question, first we have to apply the return on investment formula so that the net income value could find out which is shown below:

Return on investment = Net Income ÷ Average Operating Assets × 100

28.8% = Net Income ÷ $259,000

So, the Net income would be

= $74,592

Now the margin would be

= Net income ÷ Sales × 100

= $74,592 ÷ $414,400 × 100

= 18%