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The current income of an investment center is $42,000. Its current invested capital is $280,000. If the sales margin is increased to 8% and the capital turnover remains constant at 3, what will be the investment center's new return on investment (ROI)?

Respuesta :

Answer:

24%

Explanation:

Data provided:

Current income of the company = $ 42,000

Current invested capital = $ 280,000

sales margin = 8%

capital turnover = 3

thus,

sales = capital invested × capital turnover

or

sales = $ 280,000 × 3 = $ 840,000

Thus,

the new sales margin = 8 % of the sales = 0.08 × $ 840,000 = $ 67,200

therefore,

the return on investment = ( new sales margin / Amount invested) × 100%

or

the return on investment = ( $ 67,200 / $ 280,000 ) × 100% = 24%

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