Use the information in Brief Exercise 25.2 to compute the ROI for the Pennsylvan
ID: 2371242 • Letter: U
Question
Use the information in Brief Exercise 25.2 to compute the ROI for the Pennsylvania factory using total assets and assets net of depreciation. Now find residual income if the company expects an 18 percent return on total assets. Is the Pennsylvania factory performing up to management's expectations?
Year 2
Sales.............................$1,000,000
Operating expenses..........640,000
Total assts......................2,200,000
Accumulated depreciation..220,000
Explanation / Answer
Net Income = $140,000
Total Asset = $2,200,000
ROI for the Pennsylvania factory using total assets and assets net of depreciation = 140000/2200000 = 6.36%
No , the Pennsylvania factory is not performing up to management's expectations because company expect 18 % where as actual return is 6.36% which is much below than expected
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