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ROI and Economic Profit Calculations X Y Z invested capital $1,050,000 $_______

ID: 2502534 • Letter: R

Question

ROI and Economic Profit Calculations

X

Y

Z

invested capital

$1,050,000

$_______

$1,200,000

income

$________

$142,800

$210,000

revenue

$2,310,000

$2,856,000

$_______

return on sales

3.00%

________%

_________%

capital turnover

_________

________

3.5

rate of return o invested capital

_________%

10.50%

__________%

1.       Prepare a similar tabular presentation, filling in all blanks.

2.       Suppose each division is assessed a capital charge based on a cost of capital of 10% of invested capital. Compute the economic profit for each division.

3.       Which division is the best performer? Explain.

  

X

     

Y

     

Z

     

invested capital

     

$1,050,000

     

$_______

     

$1,200,000

     

income

     

$________

     

$142,800

     

$210,000

     

revenue

     

$2,310,000

     

$2,856,000

     

$_______

     

return on sales

     

3.00%

     

________%

     

_________%

     

capital turnover

     

_________

     

________

     

3.5

     

rate of return o invested capital

     

_________%

     

10.50%

     

__________%

  

Explanation / Answer

PARTICULARS X Y Z invested capital (A) $1,050,000 1360000 $1,200,000 income 69300 $142,800 $210,000 revenue $2,310,000 $2,856,000 4200000 return on sales 3.00% 5 5 capital turnover 2.2 2.1 3.5 rate of return o invested capital 6.6 10.50% 17.5 Cost of capital (B) 10% 10% 10% cost of capital of each division (C = A x B) 105000 136000 120000 income (D) 69300 $142,800 $210,000 Economic Profit (D - C) -35700 6800 90000 Hence, Z is the best performer as economic profit is high. Formulas used : Return on Sales = (Income / sales) x 100 Return on capital = (Income/ Capital Invested) Capital Turnover = Sales / Capital Invested Have interchanged the formulas for getting the missed values