Answer 4 to 6 Problem 4 (ROI Calculations with Varying Assumptions)Knix Products is a division of Park Textiles, Inc. During the coming year, itexpects to earn a net operating income of P310,000 based on sales ofP3.45million; without any new investments, the division will have average netoperating assets of P3 million. The division is considering a capital investmentproject- adding knitting machines to produce gaiters - that requires an additionalinvestment of P600,000 and increases net operating income by P57,500 (saleswould increase by P575,000). If made, the investment would increase beginningnet operating assets by P600,000 and ending net operating assets by P400,000.Assume that the minimum rate of return required by the company is 7 percent. 5. Assume that a JIT purchasing and manufacturing system is installed,investment. Compare these with the old ratios., Compute the margin and turnover ratios for the division with the newAssume that a JIT purchasing and manufacturing system is installed,reducing average operating assets by P800,000. Compute the ROI withand without the investment under this new scenario. Now do you thinkthe divisional manager will accept the new investment? Should he acceptit? Explain your answer.6. Refer to Requirement 5. Compute the margin and turnover ratios withoutthe investment. Use these ratios to explain why the ROI increases.

(4). Margin after the new investment = Net Income / Sales…

Problem 4 (R ulati ying Knix Products is a division of Park Textiles, Inc. During the coming year, it a net operating income of P310,000 based on sales of P3.45million; without any new investments, the division will have average net expects to earn Th dvicion ic considering a canital investment :11:

Problem 4 (R ulati ying Knix Products is a division of Park Textiles, Inc. During the coming year, it a net operating income of P310,000 based on sales of P3.45million; without any new investments, the division will have average net expects to earn Th dvicion ic considering a canital investment :11:

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 43P: Return on Investment and Economic Value Added Calculations with Varying Assumptions Knitpix Products...

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8-1 - Please solve parts 1 through 3 Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $310,000 based on sales of $3.45 million. Without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment project—adding knitting machines to produce gaiters—that requires an additional investment of $600,000 and increases net income by $57,500 (sales would increase by $575,000). If made, the investment would increase beginning operating assets by $600,000 and ending operating assets by $400,000. Assume that the actual cost of capital for the company is 8%. Required: 1. Compute the ROI for the division without the investment. Round your answer to two decimal places. % 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1. Round your answers to two decimal…