Problem 9-17B Return on Investment (ROI) and Residual Income [LO9-1, LO9-2] 1. C
ID: 2446040 • Letter: P
Question
Problem 9-17B Return on Investment (ROI) and Residual Income [LO9-1, LO9-2]
1. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Do not round intermediate calculations. Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)
Margin _____%
Turnover ______
ROI _______%
2. The board of directors of Stirling, Inc., has set a minimum required return of 17%. What was the company’s residual income last year?
Residual Income ___________
Financial data for Stirling, Inc., for last year are as follows:Explanation / Answer
1)
Margin ratio = Net income/Net sale
=586,480/6,204,000
= 9.45%
Inventory turnover ratio =Cost of goods sold/Average inventory
= 6,204,000/(643,000+558,000)/2
=6,204,000/ 600,500
= 9.67%
Return on investment = Residual income/Investment
=586,480/1,496,000
= 39.02%
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