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ID: 2566160 • Letter: #
Question
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Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below: Sales Net operating income Average operating assets 17,400,000 4,400,000 $ 35,800,000 Required: 1. Compute the margin for Alyeska Services Company. (Round your answer to 2 decimal places.) 2. Compute the turnover for Alyeska Services Company. (Round your answer to 2 decimal places.) 3. Compute the return on investment (ROI) for Alyeska Services Company. (Round your intermediate calculations and final answer to 2 decimal places.) 1. Margin 2. Turnover 3. ROIExplanation / Answer
Q1 – Alyeska Services Company
Margin = (net operating income/sales) x 100
Net operating income = $4,400,000
Sales = $17,400,000
Margin = (4,400,000/17,400,000) x 100 = 25.29%
Turnover = sales/average operating assets
Average operating assets = $35,800,000
Sales = 17,400,000
Turnover = 17,400,000/35,800,000 = 48.60%
ROI = margin x turnover
Margin = 25.29%
Turnover = 0.47
ROI = 25.29% x 48.6% = 12.29%
1
Margin
25.29%
2
Turnover
0.47
3
ROI
12.29%
Q2 – Juniper Design Ltd
Computation of residual income –
Residual income = operating income – (operating assets x minimum required rate of return)
Operating income = $490,000
Operating assets = $2,000,000
Minimum required rate of return = 15%
Minimum return on operating assets = $2,000,000 x 15% = $300,000
Residual Income = $490,000 - $300,000 = $190,000
Hence, residual income for Juniper Design is $190,000
Q -3
Fill in the missing information using the comparative data:
Companies in the Same Industry
A
B
C
Sales
$2,805,000
$2,076,000
$8,004,000
Net Operating Income
$420,750
$415,200
$480,240
Average Operating Assets
$1,650,000
$3,460,000
$3,480,000
Margin
15
%
20
%
6
%
Turnover
1.7
0.6
2.3
Return on Investment (ROI)
$26
%
12
%
13.8
%
For Company A –
Operating income = $420,750
Sales = $2,805,000
Margin = 420,750/2,805,000 = 15%
Average operating assets = $1,650,000
Turnover = $2,805,000/$1,650,000 =1.7
= 15% x 1.7 = 25.5%
For Company B –
Operating income = $415,200
Sales = $2,076,000
Margin = 415,200/2,076,000 = 20%
ROI = 12%
Turnover = 0.12/0.20 = 0.6
= $2,076,000/0.6 = $3,460,000
For Company C –
= 6% x 2.3 = 13.8%
= $3,480,000 x 2.3 = $8,004,000
= $8,004,000 x 6% = $480,240
1
Margin
25.29%
2
Turnover
0.47
3
ROI
12.29%
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