Answer:
To calculate the new return on investment (ROI) after reducing expenses, we need to determine the new net operating income (NOI) and the new average total operating assets.
Given:
Original ROI = 10%
Sales = $490,000
Total operating assets = $510,000
Expense reduction = $51,000
First, calculate the original NOI:
NOI = Sales - Expenses
NOI = $490,000 - Expenses
Since the original ROI is 10%, we can express the original NOI as a percentage of the original total operating assets:
10% = (NOI / Total operating assets) * 100
Now, let's calculate the new NOI:
New NOI = Sales - (Expenses - Expense reduction)
New NOI = $490,000 - ($510,000 - $51,000)
New NOI = $490,000 - $459,000
New NOI = $31,000
Next, calculate the new ROI:
New ROI = (New NOI / Total operating assets) * 100
New ROI = ($31,000 / $510,000) * 100
New ROI ≈ 6.08%
Therefore, the new ROI, after reducing expenses, would be approximately 6.08%.