Solano Company has sales of $820,000, cost of goods sold of$530,000, other operating expenses of $60,000, average investedassets of $2,400,000, and a hurdle rate of 11 percent.
2. Several possible changes that Solano couldface in the upcoming year follow. Determine each scenario’s impacton Solano’s ROI and residual income. (Note: Treat each scenarioindependently.)
a. Company sales and cost of goods sold increaseby 30 percent.
b. Operating expenses decrease by $11,000.
c. Operating expenses increase by 20percent.
d. Average invested assets increase by$460,000.
e. Solano changes its hurdle rate to 16percent.
