A family friend has asked your help in analyzing the operations of three anonymo
ID: 2524599 • 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. Round your percentage answers to nearest whole percent and other amounts to whole dollars.)
Company A B C Sales $420,000 $700,000 $600,000 Net operating income $43,000 Average operating assets $165,000 $156,000 Return on investment (ROI) 20 % 19 % % Minimum required rate of return: Percentage 15 % % 14 % Dollar amount $54,000 Residual income $7,000Explanation / Answer
Company A
Net Operating Income
= $1,65,000 x 0.20
= $33,000
Minimum Required rate of return Dollar Amount
= $1,65,000 x 0.15
= $24,750
Residual Income
= $33,000 - $24750
= $8,250
Company B
Average Operating Assets
= $43,000 / 0.19
= $2,26,316
Minimum Required rate of return Percentage
= $54,000 / $226316
= 24%
Residual Income
= $43000 - $54000
= - $11,000 (Negative)
Company C
Minimum Required rate of return Dollar Amount
= $156000 x 0.14
= $21,840
Net Operating Income
= $21840 + $7000
= $28,840
Return on Investment (ROI)
= $28,840 / $1,56,000
= 18.49% or 18% (Rounded)
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