Use the Following Information to Answer Question Waverly Company Has Set a Target Return on Investment (ROI)

question 40

Essay

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012: $$\begin{array} { l l } \text { Revenues } & \$ 400,000 \\\text { Operating expenses } & \$ 360,000 \\\text { Operating income } & \$ 40,000 \\\text { Operating assets } & \$ 500,000\end{array}$$
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Assume that the division believes its revenues and operating expenses will continue to be $400,000 and $360,000, respectively. To what level would the Furniture Division have to reduce its operating assets to achieve the target ROI?

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Definitions:

Sale Of Inventory

The process of selling a company's goods and products that are part of its stock to generate revenue.

Payment To Supplier

A financial transaction involving the transfer of funds to a supplier in exchange for goods or services.

Operating Cycle

The duration of time from the acquisition of inventory to the collection of cash from receivables, reflecting the efficiency of a business's operations.

Inventory Turnover

Inventory Turnover is a ratio that shows how many times a company's inventory is sold and replaced over a period.