Curtis Company's Balance Sheet and Income Statement Are Provided Below

Essay

Curtis Company's balance sheet and income statement are provided below:
$\begin{array}{c}\text { Curtis Company}\\\text { Balance Sheet }\\\text { December 31 , Year 1}\\\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 80,000 \\\text { Accounts receivable } & 56,000 \\\text { Inventory } & 30,000 \\\text { Plant and equipment } & 440,000 \\\text { Less accumulated depreciation } & \underline{(120,000)} \\\text { Total assets } & \underline{ \$ 486,000 }\\\\\text { Liabilities and Stockholders'Equity }\\\text { Accounts payable } & \$ 24,000 \\\text { Notes payable } & 80,000 \\\text { Capital stock, no par } & 180,000 \\\text { Retained earnings } &\underline{ 202,000} \\\text { Total liabilities and stockholders' equity } & \underline{\$ 486,000}\end{array}\end{array}$ $\begin{array}{c} \text { Curtis Company }\\ \text { Income Statement}\\ \text { For the Year Ended December 31 Year 1}\\\\\begin{array}{lrr} \text { Sales } &\$480,000\\ \text { Less variable costs: } &\\ \text { Manufacturing} &120,000\\ \text { Selling and administrative } &\underline{110,000}\\ \text {Contribution margin } &\$250,000\\ \text { Less fixed costs: } &\\ \text {Manufacturing } &90,000\\ \text { Selling and administrative} &\underline{40,000}\\ \text { Net income} &\underline{\$120,000}\\\end{array}\end{array}$
The company pays its senior managers a bonus based on ROI.
Required:
1)Compute the company's ROI assuming that the amount of operating assets is measured at:
(a)cost;
(b)book value; and
(c)current replacement value,$700,000.
Round ROI to one decimal place (i.e.,4.6%)
2)What is the lesson of this exercise?