Question

ZNet Co. is a web-based retail company. The company reports the following for 2017. Sales $ 10,100,000 Operating income 3,838,000 Average invested assets 20,200,000 The company’s CEO believes that sales for 2018 will increase by 20%, and both profit margin (%) and the level of average invested assets will be the same as for 2017. 1. Compute return on investment for 2017. 2. Compute profit margin for 2017. 3. If the CEO’s forecast is correct, what will return on investment equal for 2018? 4. If the CEO’s forecast is correct, what will investment turnover equal for 2018?

Answer 1

Return on investment = 19.00 percent, profit margin = 38.00 percent, return on investment = 22.80 percent, investment turnover = 0.60

Step-by-step explanation:

1. return on investment is as follows:

operating income by average invested assets = return on investment

$3838000 by $20200000 = 19.00 percent

2. profit margin is calculated as follows:

Operating income by sales = Profit margin

$3838000 by $10100000 = 38.00 percent

3. Return on investment is as follows:

Operating income by Average invested assets = return on investment

$4605600 by $20200000 = 22.80 percent

Note : Revised sales = $10100000 into 1.20 = $12120000

Profit margin = $12120000 inot 38 percent = $4605600

4. Investment turnover is calculated as follows:

Sales by Average invested assets = Investment turnover

$12120000 by $20200000 = 0.60