The Lawn and Garden Center of a Local Hardware Store

Essay

The lawn and garden center of a local hardware store would like to find additional ways to attract customers. One idea the manager of this section had was to purchase a machine that would allow customers to fill a reusable container of their choosing with grass seed. The customers would then pay by the ounce and could return to the store as often as needed to obtain more grass seed. The company also views this as an opportunity to promote a more earth-friendly approach to lawn center by reducing plastic waste from disposable bags of grass seed. A new dispenser machine could be purchased and installed at the store for $4,702. There would be yearly maintenance fee of $186 and other annual expenses (excluding depreciation) of $563. The machine would have a useful life of 15 years, and the company would like to use a straight-line depreciation calculation. The manager believes yearly sales would be $1,942. Prior to moving forward with this purchase, the manager would like to analyze some data. (Do not round your calculations.)
a. What is the Return on Sales or Profit Margin for the Dispenser? Discuss what this number means for the company.
b. What is the Investment Turnover for the Dispenser? Discuss what this number means for the company.
c. Should the manager seriously consider moving forward with this purchase if the ROI is 16% on average for the company? Would your answer change if the manager's evaluation was based upon ROI?