Optix International 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. Frank Renolds, senior production
Department manager, is very excited about the high-tech new equipment that will have to
Be acquired to produce the new products. Carol Fischer, 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 $10,000,000 $18,000,000
Net income $800,000 $1,800,000
Average total assets $5,000,000 $15,000,000
Instructions
(a) Compute the company's return on assets ratio, profit margin ratio, and asset turnover
Ratio, 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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Your first step in this problem is to look up the formulas for the ratios mentioned in Part A. If you would look those up and try to solve them, showing your work, we can check them and see if you are right or give you some help if there is a misunderstanding. Thanks.

Return on Assets Ratio: = Net Income / Total Assets=
With: 800,000/5,000,000=16%
Without: 1,800,000/ 15,000,000= 12%

Profit Margin Ratio: = Net Income / Sales
With: 800,000/ 10,000,000= 8%
Without: 1,800,000/ 18,000,000= 10%

Asset Turnover Ratio: = Sales/ Total Assets
With: 10,000,000/ 5,000,000= 2
Without: 18,000,000/ 15,000,000= 1.2