Thornton Corporation operates three investment centers. The following financial

Question

Thornton Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, 2018 $105,680 58,275 47,405 Sales revenue cost of goods sold Gross margin Operating expenses Selling expensers Depreciation expense Operating income (2,720) (4,175 40,520 Nonoperating item Loss of sale of land Net income $ 36,110 BOWMAN DIVISION Balance Sheet As of December 31, 2018 Assets Cash Account# receivable Merchandise inventory Equipment less accumulated depreciation Nonoperating assets s 12,482 40 356 6,100 0,368 9 200 188,506 Total assets Liabilitien Accounts payable Notes payable 5 9.557 71, 00o Stockholders eguity Common stock Retained earninge 79, 000 Total liabilities and stockholdera equity 5188,506

Explanation / Answer

c. ROI = net profit / invested capital

Net profit = 36110

Invested capital = notes payable + common stock + retained earnings

= 71000 + 79000 + 28949

= $178949

ROI = 36110 / 178949

= 20.17%

d) For new ROI,

Additional Net income = 0.14*86000 = $12040

New net income = 12040 + 36110 = $48150

New Invested capital = 178949 + 86000 = $264949

New ROI = $48150 / $264949

= 18.17%

e. Original Residual income = Operating income - (minimum required return rate* operating assets)

= 36110 - (0.12* 179306)

= -$14593

New residual income = 48150 - (0.14* 179306)

= -$23047

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