Question

Thornton Company calculated its return on investment as 10 percent. Sales are now $460,000, and the amount of total operating assets is $480,000. Required If expenses are reduced by $44,400 and sales remain unchanged, what return on investment will result

Answer 1

19.25%

Step-by-step explanation:

The computation of the new return on investment is shown below:

But before that

The net income is

As we know that

Return on investment = Net income ÷ Total assets

10% = Net income ÷ $480,000

So, the net income = $48,000

Now if the expenses reduced by $44,400

That means the net income would increased by

= $48,000 + $44,400

= $92,400

So, the new return on investment is

= $92,400 ÷ $480,000

= 19.25%