FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Eve Corporation is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings but offer a complementary fit to its existing product line. Sergei Bates, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Will Smith, the company’s CFO, has provided the following projections based on results with and without the new products.
| Without New Products | With New Products | ||
| Sales revenue | $10,000,000 | $16,000,000 | |
| Net income | $500,000 | $960,000 | |
| Average total assets | $5,000,000 | $12,000,000 |
Instructions a) Compute the company’s return on assets, profit margin, and asset turnover, both with and without the new product line. b) Discuss the implications that your findings in part (a) have for the company’s decision.
Transcribed Image Text:Eve Corporation is considering a significant expansion to its product line. The sales force is
excited about the opportunities that the new products will bring. The new products are a
significant step up in quality above the company's current offerings but offer a complementary
fit to its existing product line. Sergei Bates, senior production department manager, is very
excited about the high-tech new equipment that will have to be acquired to produce the new
products. Will Smith, the company's CFO, has provided the following projections based on
results with and without the new products.
Without New Products
With New Products
$ 10,000,000
$ 16,000,000
$
$ 12,000,000
Sales revenue
Net income
$
500,000
960,000
Average total assets
$ 5,000,000
Instructions
a) Compute the company's return on assets, profit margin, and asset turnover, both with
and without the new product line.
b) Discuss the implications that your findings in part (a) have for the company's decision.
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