Sales and average operating assets for Company P and Company Q are given below: What is the margin that each company will have to earn in order to generate a return on investment of 20%?
A)12% and 16%
B)50% and 100%
C)8% and 4%
D)2.5% and 5%

Question

Sales and average operating assets for Company P and Company Q are given below:  What is the margin that each company will have to earn in order to generate a return on investment of 20%?
A)12% and 16% 
B)50% and 100% 
C)8% and 4% 
D)2.5% and 5%

Quizplus · Accepted Answer

Company P:
Turnover = Sales F1F1F1S1F1F1F10 Average operating assets = $20,000 F1F1F1S1F1F1F10 $8,000 = 2.5
ROI F1F1F1S1F1F1F10 Turnover = Margin = 20% F1F1F1S1F1F1F10 2.5 = 8%
Company Q:
Turnover = Sales F1F1F1S1F1F1F10 Average operating assets = $50,000 F1F1F1S1F1F1F10 $10,000 = 5
ROI F1F1F1S1F1F1F10 Turnover = Margin = 20% F1F1F1S1F1F1F10 5 = 4%

Sales and Average Operating Assets for Company P and Company