A family friend has asked your help in analyzing the operations of three anonymo
ID: 2471944 • Letter: A
Question
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Enter your ROI and Rate of Return Percentage answers to the nearest percentage (i.e., 0.12 should be entered as 12).
Company A
Company B
Company C
Sales
$340,000
$790,000
$550,000
Net Operating Income
$54,000
Average Operating Assets
$151,000
$147,000
Return on Investment
16 %
19%
Minimum required rate of return
Percentage
17%
15%
Dollar Amount
$54,000
Residual Income
$7,000
Company A
Company B
Company C
Sales
$340,000
$790,000
$550,000
Net Operating Income
$54,000
Average Operating Assets
$151,000
$147,000
Return on Investment
16 %
19%
Minimum required rate of return
Percentage
17%
15%
Dollar Amount
$54,000
Residual Income
$7,000
Explanation / Answer
Calculations are as follows:
Return on investment = Net operating income / Average operating Assets
Company A = .16 = operating income / 151000 =24160
Company B = .19 = 54000 / Average operating assets = 284211
Company C = 29050 / 147000 = 19.76%
Residual Income = net operating income - (Average operating assets * minimum rate of return)
Company A = 24160 -(151000 * .17) = -1510
Company B = 54000 - (284211 * 18.91% ) = 255.699
Company C = 7000 = operating income - (147000 * .15) = 29050
Dollar amount of minimum rate of return = Average operating assets * minimim rate of return
Company A =151000 * .17= 21420
Company B = 54000 = 284211 * Minimum rate of return = 18.91%
Company C = 147000 * .15 = 22050
Company A
Company B
Company C
Sales
$340,000
$790,000
$550,000
Net Operating Income
24160
$54,000
29050
Average Operating Assets
$151,000
284211
$147,000
Return on Investment
16 %
19%
19.76%
Minimum required rate of return
21420
53744
Percentage
17%
18.91
15%
Dollar Amount
21420
$54,000
53744
Residual Income
-1510
255.699
$7,000
Company A
Company B
Company C
Sales
$340,000
$790,000
$550,000
Net Operating Income
24160
$54,000
29050
Average Operating Assets
$151,000
284211
$147,000
Return on Investment
16 %
19%
19.76%
Minimum required rate of return
21420
2205053744
Percentage
17%
18.91
15%
Dollar Amount
21420
$54,000
53744
Residual Income
-1510
255.699
$7,000
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