Exercise 10 20 Isabele Abiassi operates a popular surmmer camp for elementary sc
ID: 2535310 • Letter: E
Question
Exercise 10 20 Isabele Abiassi operates a popular surmmer camp for elementary school chidren. Projections for te current year are as follows: 5ales revanue $8,52D,000 Operating income 756,500 Average assets $4,304,000 The camp's weighted average cost or capital is 11%, and Isabelle requires that all new investments generate a return ori nvestnent of at least 15%. The camp's current tax rate is 255 acilities at the camp and asked them to recommend somc pro e Today the boards pre adent presented sabelle with h following list of three potential investments At last week's ad sary board mccting Isabelle tald the board that she had up to 50 to improve the camp facilities 0 to invest in nen s Incremental operating income Average total assets $4,095 27,300 Pool $5,796 41,400 Gym 3,140 15,700 Calculate the eturn on Investment residual come, and economic value added or each of the three pro ects. answer to 2 decimal places, eg, 15.25 & all other answers to 0 decimal places, e.g. 15 or 15%.) Enter negatl e amounts sing either ? negati e s g preceding the number e 45 or parentheses eg. 45 . Ro nd Economic Vo e Added Pool Returri on Investrment Residual Income Economic Value AddedExplanation / Answer
Play Ground
Pool
Gym
Return on residual Income
15%
14%
20%
Residual Income
0 (Zero)
- $414 (Negative)
$785
Economic Value Added
$68.25
- $207 (Negative)
$628
PLAYGROUND
1.Return on investment
=Incremental operating income / Average total assets
=$4095/ $27300 * 100
=15%
2.Residual Income
= $4095 – ($27300 x 15%)
= $4095 - 4095
= 0 (Zero)
3.Economic Value Added
=($4095 x 75%) – ($27300 x 11%)
= $3071.25 - $3003
= $68.25
SWIMMING POOL
1.Return on investment
=Incremental operating income / Average total assets
=$5796 / $41400 * 100
=14%
2.Residual Income
= $5796 – ($41400 x 15%)
= $5796 – 6210
= - $414 (Negative)
3.Economic Value Added
=($5796 x 75%) – ($41400 x 11%)
= $4347 – 4554
= - $207 (Negative)
GYM
1.Return on investment
=Incremental operating income / Average total assets
=$3140 / 15700 * 100
=20%
2.Residual Income
= $3140 - ($15700 x 15%)
= $3140 – 2355
= $785
3.Economic Value Added
=($3140 x 75%) – ($15700 x 11%)
= $2355 - 1727
= $628
Play Ground
Pool
Gym
Return on residual Income
15%
14%
20%
Residual Income
0 (Zero)
- $414 (Negative)
$785
Economic Value Added
$68.25
- $207 (Negative)
$628
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