Question: Describe how the Profit-Leverage Effect and Return-on-Asset Effect works. Suppose an organization has a $200 million revenue, purchases of $130 million, and profit of $13

Describe how the Profit-Leverage Effect and Return-on-Asset Effect works. Suppose an organization has a $200 million revenue, purchases of $130 million, and profit of $13 million before tax.

  1. How much would profit increase with a 10% purchase cost reduction? How much is the Return-On-Asset (ROA) after the 10% cost reduction if assets were $13 million? How does this affect the company's Inventory Investment?

Explain throughly and show your solutions.

Please answer #1

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