Zylex Corporation has multiple factories across the United States. The upper man
ID: 2510062 • Letter: Z
Question
Zylex Corporation has multiple factories across the United States. The upper management at Zylex evaluates each factory based the capital turnover ratio from the DuPont system. The following is information for the factory in Pennsylvania for the past year. Sales Operating expenses Total assets (prior to subtracting accumulated depreciation) Accumulated depreciation $3,600,eee 1,280,e0e 8,000,80 2,000,00e a. Compute the ROl for the Pennsylvania factory using total assets and assets net of depreciation. b. Find residual income if the company expects a 25 percent return on total assets. c. Is the Pennsylvania factory performing up to management's expectations? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the ROI for the Pennsylvania factory using total assets and assets net of depreclation. Total assets Assets net of depreciationExplanation / Answer
Answer a
Note : Net Profit = Sales - Operating Expenses = $3,600,000 - $1,200,000 = $2,400,000
Return on Total Assets = (Net Profit / Total assets) * 100 = ( $2,400,000 / $8,000,000) * 100 = 30 %
Return on Assets net of depreciation = [Net Profit / (Total assets - Accumulated depreciation) ] * 100
= [$2,400,000 / ($8,000,000 - $2,000,000)] * 100 = 40 %
Answer b
Residual Income = Net Profit - ( Expected required return * Total assets)
$2,400,000 - ($8,000,000 * 25 %) = $2,400,000 - $2,000,000 = $400,000
Answer c.
Yes, the Pennsylvania factory is performing up to management expectations.
Explanation : The return on total asset ie 30 % is more than the expected return of 25 %. that means the factory is earning more than its minimum expected required return . This results in additional or residual income of $400,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.