Capters 11-13) Part 2. Problems. There are four problems. Each one is worth the

Question

Capters 11-13) Part 2. Problems. There are four problems. Each one is worth the score indicated next to the problem number. Show all work for complete credit. You may attach extra pages if you so desire. Please be NEAT when writing your answers. I cannot grade illegible answers. (40 points possible) 1. (10 points) Eban Wares is a division of a major corporation. The following data are for the latest year of operations Sales Net operating income.. Average operating assets The company's minimum required rate of return.... $10,000,000 $950,000 $4,000,000 14% The manager of Eban Wares has an opportunity to add a project with the following characteristics Cost of new equipment Additional sales Additional expenses $1,200,000 $3,000,000 $2,100,000 Required: a. What is the division's margin (before the new project)? b. What is the division's turnover (before the new project)? c. What is the division's return on investment (ROI) (before the new project)? d. What is the division's residual income (before the new project)? e. What is the division's margin (after the new project is added)? f. What is the division's turnover (after the new project is added)? g. What is the division's return on investment (ROI) (after the new project is added)? What is the division's residual income (after the new project is added)? h.

Explanation / Answer

a) Margin before new project = Net operating income*100/sales

= 950000*100/10000000

Margin before new project = 9.5%

b) Turnover before new project = Sales/average operating asssets

= 10000000/4000000

Turnover before new project = 2.5

c) ROI before new project = Net operating income*100/average operating assets

= 950000*100/4000000

ROI before new project = 23.75%

d) Residual income before new project = Actual net operating income-Minimum operating income

= 950000-(4000000*14%)

Residual income before new project = 390000

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