# Return on investment (ROI): Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows: R O I = O p e r a t i n g I n c o m e A v e r a g e t o t a l a s s e t s R O I ( E x p a n d e d ) = O p e r a t i n g I n c o m e S a l e s × S a l e s A v e r a g e t o t a l a s s e t s Or R O I = P r o f i t M a r g i n R a t i o × A s s e t T u r n o v e r r a t i o To Indicate: The reason why the manager would decide to reject the new product line

### Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

### Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

#### Solutions

Chapter
Section
Chapter 14, Problem 14.5.5C
Textbook Problem
Expert Solution
To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

To Indicate:

The reason why the manager would decide to reject the new product line

### Explanation of Solution

The Return on investment for the patio division for the past year is calculated as follows:

 Operating Income (A) $3,600,000 Invested Assets (B)$ 15,000,000 Return on Investment (ROI) = A/B = 24%

The estimated return on investment after adding the new product line is calculated as follows:

## Expert Solution

### Want to see the full answer?

Check out a sample textbook solution.

### Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.