Frazier Company's revenues are $300 on invested capital of $240.Expenses are currently 84% of sales.If Frazier Company can reduce its expenses to 70% of sales, return on investment will be _____.

Question

Quizplus · Accepted Answer

First, let's calculate the current return on investment (ROI) using the formula:

ROI = (Net Income / Invested Capital) x 100%

We can calculate the net income as:

Net Income = Revenues - Expenses
Net Income = $300 - ($300 x 0.84)
Net Income = $48

So, the current ROI is:

ROI = ($48 / $240) x 100%
ROI = 20%

Now, let's calculate the ROI after reducing the expenses to 70% of sales. The net income will be:

Net Income = Revenues - Expenses
Net Income = $300 - ($300 x 0.7)
Net Income = $90

So, the new ROI will be:

ROI = ($90 / $240) x 100%
ROI = 37.5%

Therefore, the answer is B. If Frazier Company can reduce its expenses to 70% of sales, the return on investment will be 37.5%.

Frazier Company's Revenues Are $300 on Invested Capital of $240