Question

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

Sales	$18,310,000
Net operating income	$1,171,840
Average operating assets	$5,550,000

The division's turnover is closest to: (Round your answer to 2 decimal places.)

15.63

3.30

0.21

4.74

1b. Aguilera Industries is a division of a major corporation. Data concerning the most recent year appears below:

Sales	$18,280,000
Net operating income	$712,920
Average operating assets	$4,360,000

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

3.90%

16.35%

12.50%

.90%

1c. The management of Fannin Corporation is considering dropping product H58S. Data from the company's accounting system appear below:

Sales	$990,000
Variable expenses	$395,000
Fixed manufacturing expenses	$377,000
Fixed selling and administrative expenses	$257,000

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $247,000 of the fixed manufacturing expenses and $208,000 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 $39,000.

Overall net operating income would increase by $39,000.

Overall net operating income would increase by $140,000.

Overall net operating income would decrease by $140,000.

1d. Chee Corporation has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.)

Investment required in equipment	$410,000
Annual cash inflows	$60,000
Salvage value	$0
Life of the investment	16 years
Required rate of return	9%

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

4.8 years

6.8 years

Answer 1

1
Turnover = Sales/ Average operating assets = 18310000/5550000= 3.30
2
Return on investment (ROI) = Net operating income /Average operating assets = 712920/4360000= 16.35%
3
Loss in contribution margin	-595000	=395000-990000
Avoudable fixed costs	455000	=247000+208000
Net operating income change	-140000
Overall net operating income would decrease by $140,000.
4
Payback period = 410000/60000 = 6.8 years