LIFO versus FIFO-impact on ROI. Natco, Inc., uses the FIFO inventory cost-flow assumption. In a year of rising costs and prices, the firm reported net income of $480,000 and average assets of $3,000,000. If Natco had used the LIFO cost-flow assumption in the same year, its cost of goods sold would have been $80,000 more than under FIFO, and its average assets would have been $80,000 less than under FIFO.
Required:
a. Calculate the firm's ROI under each cost-flow assumption.
b. Suppose that two years later costs and prices were falling. Under FIFO, net income and average assets were $576,000 and $3,600,000, respectively. If LIFO had been used through the years, inventory values would have been $100,000 less than under FIFO, and current year cost of goods sold would have been $400,000 less than under FIFO. Calculate the firm's ROI under each cost-flow assumption.