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11 February, 22:14

Bryan manufacturing had sales of $4,000,000 and net operating income of $700,000. operating assets during the year averaged $600,000. the manager of hardcastle is considering the purchase of a new machine which is expected to increase average operating assets by 8%. if the new machine is purchased, the company's new return on investment (roi) would be:

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  1. 11 February, 22:50
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    ROI as a financial ratio is calculated as follows:

    ROI = Net profit/Total investments

    In the current case,

    Net profit = Net operating income = $700,000

    Total investments = Operating assets = $600,000

    After purchasing the new machine,

    Total investments = 600,000*1.08 = $648,000

    Therefore, the new ROI is;

    ROI = 700,000/648,000 ≈ 1.08 = 108%
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