Question

Question 4: Wild River Rafting Company sells outdoor gear. For 2020, Wild River prepares a forecast that includes the following: 2020 Projected Sales $1,000,000 2020 Projected Net Operating Income $40,000 2020 Projected Average Operating Assets $400,000 Wild River believes that by selling some surplus store equipment that Wild River could reduce projected average operating assets by $80,000. If Wild River was able to reduce average operating assets by $80,000, what would be Wild River’s return on Investment?

Answer 1

Net operating income = $40,000

Projected average operating assets = $400,000

Decrease in average operating assets = $80,000

average operating assets after decrease = Projected average operating assets - Decrease in average operating assets

= 400,000 - 80,000

= $320,000

return on Investment = Net operating income/average operating assets

= 40,000/320,000

= 12.5%

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