Question

1. The operating income and the amount of invested assets in each division of Conley Industries are as follows:

	Operating Income		Invested Assets
Retail Division	$159,600		$840,000
Commercial Division	86,100		410,000
Internet Division	42,000		300,000

a. Compute the return on investment for each division. (Round to the nearest whole percentage.)

Division	Percent
Retail Division	%
Commercial Division	%
Internet Division	%

2. The operating income and the amount of invested assets in each division of Conley Industries are as follows:

	Operating income		Invested Assets
Retail Division	$86,000		$430,000
Commercial Division	74,800		440,000
Internet Division	91,200		380,000

Assume that management has established a 12% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

	Retail Division			Commercial Division			Internet Division
Operating income	$86,000			$74,800			$91,200
Minimum acceptable operating income as a percent of invested assets
Residual income	$			$			$

3. Briggs Company has operating income of $19,266, invested assets of $169,000, and sales of $321,100. Use the DuPont formula to compute the return on investment. If required, round your answers to two decimal places.

a. Profit margin		%
b. Investment turnover
c. Return on investment		%

4. The Commercial Division of Galena Company has operating income of $59,470 and assets of $159,000. The minimum acceptable return on assets is 11%.

What is the residual income for the division?
$

Answer 1

Question 1	A	B	C=A/B
Particulars	Operating Income	Invested Assets	ROI
Retail Division	$         1,59,600.00	$      8,40,000.00	19.00%
Commercial Division	$            86,100.00	$      4,10,000.00	21.00%
Internet Division	$            42,000.00	$      3,00,000.00	14.00%

Question 2	A	B	C	D =BxC	E=A-D
Particulars	Operating Income	Invested Assets	Min Acceptable return %	Min Acceptable return	Residual Income
Retail Division	$            86,000.00	$      4,30,000.00	12%	$         51,600.00	$                                           34,400.00
Commercial Division	$            74,800.00	$      4,40,000.00	12%	$         52,800.00	$                                           22,000.00
Internet Division	$            91,200.00	$      3,80,000.00	12%	$         45,600.00	$                                           45,600.00

Question 3

a. Profit Margin = Operating Income / Sales =  $19,266 / $321,100 = 6.00%

b.Investment turnover = Net Sales / Total Assets = $321,100/$169,000 = 1.90

c. Return on investment = Operating Income / Total Assets = $19,266 / $169,000 = 11.40%

Dupont analysis ROI = Profit margin x Investment turnover

11.40% = 6.00% x 1.90 = 11.40%

Question 4

Residual Income = Operating Income - (Total assets x min. acceptable return %) = $59,470 - ($159,000 x 11%) = $41,980