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) ?

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%