Reference no: EM132754724
You are the cost accountant for Misha's Crystal Ball, Inc. In the current year the company had the following financial results:
Sales $1,540,000
Variable expenses 850,000
Contribution margin 690,000
Fixed expenses 237,000
Net operating income $453,000
Average operating assets $3,500,000
The company can invest in new equipment of $550,000 to produce more crystal balls. This new equipment would result in the following increases:
Sales $348,000
Net Income $92,000
The CFO would like to know what the current ROI is for the company and what would be the effect on ROI with the new investment.
Required:
Problem 1. What is the return on investment (ROI) for the current year? (Round to the nearest 0.1%.)
Problem 2. What is the ROI related to the new equipment investment? (Round to the nearest 0.1%.) (Hint - just the investment opportunity)
Problem 3. If the company decides to purchase the new equipement what will be the overall ROI will this year, be sure to include the current year's information? (Round to the nearest 0.1%.)
Problem 4. Would you suggest to the CFO to purchase the new equipment based off your above answers (answer either Yes or No)?
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