Question

In: Accounting

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

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?
$

Expert Solution

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

ekkarill92 answered 3 years ago

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