Question

valley manufacturing reported sales of $800,000, net operating income of $40,000, and average invested assets of $400,000. based on this, valley's investment turnover is , its profit margin is %, and its return on investment is %. (enter your answers as whole numbers.)

Answer 1

If Valley Manufacturing accepts the project, its return on investment (ROI) after the purchase is projected to increase from the current level of 10% to the new return on investment (ROI) of 12%.

Return on Investment (ROI) is calculated as Net Operating Income (NOI) divided by Average Operating Assets.

`\[ \text{ROI} = \frac{\text{NOI}}{\text{Average Operating Assets}} \]`

Last year, Valley Manufacturing had an ROI of
`\( (\$40,000)/(\$400,000) = 0.10 \)` or 10%.

If the company accepts the project, the new NOI becomes
`\( \$40,000 + \$20,000 = \$60,000 \)`, and the new average operating assets include the cost of the equipment:

`\[ \text{New Average Operating Assets} = \frac{\text{Beginning Assets} + \text{Ending Assets}}{2} \]`

Assuming no change in assets other than the equipment, and considering the notes payable as part of the ending assets, the new average operating assets become
`\( \$400,000 + \$100,000 = \$500,000 \)`.

The new ROI is then
`\( (\$60,000)/(\$500,000) = 0.12 \)` or 12%.

Therefore, if Valley accepts the project, its ROI is projected to increase from 10% to 12%.

The complete question is:

Last year, Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average operating assets of $400,000. The company is considering the purchase of equipment that will reduce expenses by $20,000.The equipment will cost $100,000 and be purchased by issuing a notes payable. Sales will remain unchanged. If Valley accepts the project, its return on investment (ROI) after the purchase is projected to__________ (increase/desrease) from the current level of _________% to the new return on investment (ROI) of___________%

Please fill in the blanks