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Question;Problem 15-23 Return on investmentSoto Corporation?s balance sheet indicates that the company has $300,000 invested inoperating assets. During 2011, Soto earned operating income of $45,000 on $600,000 ofsales.Requireda. Compute Soto?s profit margin for 2011.b. Compute Soto?s turnover for 2011.c. Compute Soto?s return on investment for 2011.d. Recompute Soto?s ROI under each of the following independent assumptions.(1) Sales increase for $600,000 to $750,000, thereby resulting in an increase inoperating income for $45,000 to $60,000.(2) Sales remain constant, but Soto reduces expenses resulting in an increase inoperating income from $45,000 to $48,000.(3) Soto is able to reduce its invested capital from $300,000 to $240,000 withoutaffecting operating income.Problem 16-23 Postaudit evaluationErnest Jones is reviewing his company?s investment in a cement plant. The companypaid $15,000,000 five years ago to acquire the plant. Now top management isconsidering an opportunity to sell it. The president wants to know whether the plant hasmet original expectations before he decides its fate. The company?s discount rate forpresent value computations is 8 percent. Expected and actual cash flows follow.ExpectedActualYear 1$3,300,0002,700,000Year 2$4,920,0003,060,000Year 3$4,560,0004,920,000Year 4$4,980,0003,900,000Year 5$4,200,0003,600,000Requireda. Compute the net present value of the expected cash flows as of the beginning of theinvestment.b. Compute the net present value of the actual cash flows as of the beginning of theinvestment.c. What do you conclude from this postaudit?

 

Paper#45219 | Written in 18-Jul-2015

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