connect Gutz Question 3 (of 3) velue: 1100 points Exercise 11-9 Return on Invest
ID: 2561001 • Letter: C
Question
connect Gutz Question 3 (of 3) velue: 1100 points Exercise 11-9 Return on Investment (ROI) and Residual Income Relations LO11-1, LO11-2 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) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return S 450,000 S 680,000 500,000 46,000 S 154.000 S 143,000 181% 181% 111% Dolar amount 49.000 Residual income 5.000 References eBook & Resources Worksheet Exercise 11-9 Return on Investment (ROI) Type here to search 10Explanation / Answer
SOLUTION
Company A-
Net Operating income = Average operating assets * ROI
= $154,000 * 25% = $38,500
Minimum required return (dollar) = Average operating assets * Minimum required return
= $154,000 * 16% = $24,640
Residual Income = Net Operating income - Minimum required return
= $38,500 - $24,640 = $13,860
Company B-
Average Operating assets = Net operating income / ROI
= =$46,000 / 18% = $255,556
Minimum required return (percentage) = Minimum required return /Average operating assets
= $49,000 / $255,556 = 19%
Residual Income = Net Operating income - Minimum required return
= $46,000 - $49,000 = ($3,000)
Company C-
Minimum required return (dollar) = Average operating assets * Minimum required return
= $143,000 * 12% = $17,160
Net operating income = Minimum required return (dollar) + Residual income
= $17,160 + $5,000 = $22,160
ROI = Net operating income / Average operating assets
= $22,160 / 143,000 = 15%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.