Reference no: EM132827528

Question - In the 1990s many supermarket chains shifted from regular storewide sales to issuing membership in discount and points programs, much like frequent flyer programs run by the airlines. Managers of a supermarket chain with $120 million in annual sales and a net operating asset turnover of 6.0 ponder whether to institute a customer membership program. The chain currently earns a net operating profit margin of 1.6% on sales. Its marketing research indicates that a customer membership program would increase sales by $25 million and require an additional investment in inventory of $2 million but no additional retail floor space. Costs to run the membership program, including the discount offered to members, would reduce net operating profit margins to 1.5 percent. What would be the effect on the return on net operating assets (RNOA) of adopting the customer membership program?