Question

Lance Inc. has a $1,477,500 investment opportunity with the following characteristics:

Sales	$	2,500,000
Contribution margin ratio		50	% of sales
Fixed expenses	$	757,500

The ROI for this year's investment opportunity considered alone is closest to:

A) 8.1%

B) 100.0%

C) 33.3%

D) 8.6%

Answer 1

• ROI = Net Income / Investment
• Correct answer is Option ‘C’: 33.3%
• Working:

A	Sales	$    2,500,000.00
B	CM Ratio	50%
C = A x B	Contribution margin	$    1,250,000.00
D	Fixed expenses	$        757,500.00
E = C - D	Net Income	$        492,500.00
F	Amount of Investment	$    1,477,500.00
G = (E/F) x 100	ROI	33.3%
	Correct Answer	Option 'C' 33.3%