Hi I need help with question 3

7:401 v2.cengagenow.com Chapter 24 1. To analyze differences in the return on investment across division, the DuPont formula is used. The DuPont formula views the return on investment as the product of the profit margin and the investment turnover. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Maxell Manufacturing Inc.-Commercial Division Estimated Income Statements For the Year Ended December 31, 20Y9 Proposal Proposal 2 Proposal 3 Sales 3,500,000 3,500,000 2,905,000 Cost of goods sold 2,585,000 1,920,000 2,073,300 Gross profit 915,000 1,580,000 831,700 Operating expenses 600,000 600,000 425,000 Operating income 315,000 980,000 406,700 Invested assets 2,187,500 4,375,000 1,162,000 Feedback Check My Work 2. Calculate the cost of goods sold and the amount of invested assets for each proposal using the information provided. For proposal 3, compute the amount of sales and operating expenses using the information provided. 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round the investment turnover and return on investment to one decimal place. Proposal Profit margin Investment turnover ROI Proposal 1 9 1.60 21 X % Proposal 2 28 % 0.80 22 X % Proposal 3 14 % 2.50 35 / % 4. Which of the three proposals would meet the required 21% return on investment? Proposal 1 Does not meet v Proposal 2 Meets V Proposal 3 Meets V 5. If the Commercial Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 21% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. 25 % Feedback Check My Work 3. and 4. The return on investment is the product of the profit margin and investment turnover. Compare your answers to the required 21% return. + 2 . . .7:40 '1 .III 5? E} (D v2.cengagenow.com [I] Chapter 24 Effect of proposals on divisional performance A condensed income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December 31, 20Y9, is as follows: Sales $3,500,000 Cost of goods sold (2.450.000) Gmss Prot $1,020,000 Operating expenses (600,000) 0 Operating income $420,000 Invested assets $2,500,000 Assume that the Commercial Division received no allocations from support departments. The president of Maxell Manufacturing has indicated that the division's return on a $2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $312,500 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efcient machining equipment and thereby reduce the cost of goods sold by $560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,875,000 for the year. Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by $175,000. Assets of $1,338,000 would be transferred to other divisions at no gain or loss. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Commercial Division for the past year. If required, round your answers to two decimal place. Commercial Division Prot margin 12 v/ % Invesh'nent turnover E] V] R01 , 15-30 J % Feedback " .vmmwm 1. To analyze differences in the return on investment across division, the DuPont formula is used. The DuPont formula views the return on investment as e + e