Suppose the operating asset turnover ratio increased by 35% and the margin increased by 25%.What would be the effect on the divisional ROI?
A)It would increase by 69%.
B)It would decrease by 60%.
C)It would increase by 20%.
D)It would decrease by 50%.

Question

Quizplus · Accepted Answer

The divisional ROI (Return on Investment) is calculated as the product of the operating asset turnover ratio and the margin. If the operating asset turnover ratio increases by 35% and the margin increases by 25%, the overall effect on ROI would be a multiplication of these increases: (1 + 0.35) * (1 + 0.25) = 1.35 * 1.25 = 1.6875, which is an increase of 68.75%, rounded to 69%.

Suppose the Operating Asset Turnover Ratio Increased by 35% and the Margin