The following information is available for Company
X: Sales $ 50,000
Operating expenses $ 48,600
Operating assets $ 20,000
Stockholder's equity $ 12,500
Cost of capital 4.00%
What is Company X's return on investment (ROI)? (Ignore Tax)?
A. 7.00%. B. 11.20%. C. 2.80%. D. 4.00%
FIRSTLY LETDS DISCUSS THE FORMULAE OF RETURN ON INVESTMENT-
RETURN OF INVESTMENT(ROI) = EARNING BEFORE INTEREST AND TAX(NET OPERATING PROFIT) *100
CAPITAL EMPLOYED (SHAREHOLDER'S EQUITY)
IN THIS CASE NET PROFIT WILL BE SALES LESS OPERATING EXPENSES
= $50,000- $48,600
= $1,400
AND CAPITAL EMPLOYED WILL BE $12,500
SO, ROI = 1400/12500*100
= 11.2%
SO FINAL ANSWER WILL BE OPTION B 11.2%
The following information is available for Company X: Sales $ 50,000 Operating expenses $ 48,600 Operating...