Question

22 Aguilera Industries is a division of a major corporation. Data concerning the most recent year appears below:

Sales	$18,010,000
Net operating income	$810,450
Average operating assets	$4,530,000

The division's return on investment (ROI) is closest to: (Round your answer to 2 decimal places.)

4.50%

17.89%

14.04%

1.50%

23 Fabio Corporation is considering eliminating a department that has a contribution margin of $27,000 and $73,000 in fixed costs. Of the fixed costs, $16,500 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:

a decrease of $46,000.

an increase of $46,000.

a decrease of $29,500.

an increase of $29,500.

24 The management of Fannin Corporation is considering dropping product H58S. Data from the company's accounting system appear below:

Sales	$960,000
Variable expenses	$392,000
Fixed manufacturing expenses	$374,000
Fixed selling and administrative expenses	$254,000

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $241,000 of the fixed manufacturing expenses and $202,000 of the fixed selling and administrative expenses are avoidable if product H58S is discontinued. What would be the effect on the company's overall net operating income if product H58S were dropped?

Overall net operating income would decrease by $60,000.

Overall net operating income would increase by $60,000.

Overall net operating income would increase by $125,000.

Overall net operating income would decrease by $125,000.

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25 Chee Corporation has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.)

Investment required in equipment	$630,000
Annual cash inflows	$88,000
Salvage value	$0
Life of the investment	15 years
Required rate of return	10%

The company uses straight-line depreciation. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment is closest to:

0.1 years

1.0 years

5.2 years

7.2 years

Answer 1

22.

Return on investment = Net operating income / Average operating assets

= 810,450 / 4,530,000

= 17.89%

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23.

Cost analysis

Lost contribution margin	(27,000)
Savings from avoided fixed costs (73,000-16,500)	56,500
Net gain from dropping the department	29,500

The answer is - an increase of $29,500

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24.

Cost analysis

Lost contribution margin (960,000-392,000)	(568,000)
Savings from avoided fixed costs :
Fixed manufacturing expenses	241,000
Fixed selling and administrative expenses	202,000
Net loss from dropping the product	(125,000)

The answer is - Overall net operating income would decrease by 125,000

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25.

Payback period = Initial investment / Annual cash flows

= 630,000 / 88,000

= 7.2 years