Answer:
$191,049.039 will investment in Inventory in order to achieve this goal.(ROA 9.89%)
Explanation:
Net income = 5% of sales
Net Income = 5% × ($1,312,500)
= $65,625
Return on Assets (ROA) = (Net Income ÷ Total Assets) × 100
ROA = ($65,625 ÷ $750,000) × 100
= 8.75%
as per the question we need ROA at 9.89%
ROA = Net income ÷ Total Assets
9.89% = $ 65,625 ÷ new total assets
New Total Assets = $ 65,625 ÷ 9.89%
New Total Assets = $663,549.039
To obtain ROA of 9.89% the Miserly manufacturing Company's CPO has to Reduce its Total assets by $86,450.961
[$ 750,000 - $663,549.039 = $86,450.961]
for that CPO has to reduce inventory by $86,450.961
Initial Inventory = 37% of Total Assets
Inventory = 37% × $750,000
= $277,500
New order of Inventory is equal to $191,049.039 {$277,500 - $86,450.961}
$191,049.039 will investment in Inventory in order to achieve this goal.(ROA 9.89%)
