Question
In: Accounting
Assume division 1 of the XYZ Company had the following results as of 12/31/2020: Management’s hurdle...
Assume division 1 of the XYZ Company had the following results as of 12/31/2020: Management’s hurdle rate is 8%
|
Sales (CR) |
$5,000,000 |
|
Operating Income (CI) |
1,000,000 |
|
Total assets (CA) |
10,000,000 |
21. What is the division’s Return on Investment (ROI)?
- 5%
- 10%
- 20%
- 50%
22. What is the division’s margin?
- 5%
- 10%
- 20%
- 50%
23. What is the division’s turnover?
- 5%
- 10%
- 20%
- 50%
24. What is the division’s Residual Income (RI)?
- $0
- $200,000
- $500,000
- $800,000
Solutions
Expert Solution
Given,
Sales(CR) = $50,00,000
Operating Income(CI) = $10,00,000
Total Asset (CA) = $100,00,000
Hurdle Rate =8%
Answer to Question 1:
Return on Investment = Operating Income/ Total Asset
= ($10,00,000/ $100,00,000)*100
=10%
Answer to Question 2:
(Revenue)Sales(CR) = $50,00,000
Operating Income(CI) = $10,00,000
Division Margin = Operating Income/ Revenues
= ($10,00,000/ $50,00,000)*100
= 20%
Answer to Question 3:
(Revenue)Sales(CR) = $50,00,000
Total Asset (CA) = $100,00,000
Division's Turnover = (Total Revenue/ Total Asset )*100
=($50,00,000/ $100,00,000) *100
= 50%
Answer to Question 4:
Residual Income is the difference between the actual income and the required return on investment.
Actual Operating Income = $10,00,000
Total Asset (CA) = $100,00,000
Return on Investment = 10%
Required Return on Investment= Total Asset * Return on Investment
= $100,00,000 * 10%
= $10,00,000
Residual Income = Actual Operating Income - Required Return on Investment
= $10,00,000 - $10,00,000
= $0
ekkarill92 answered 2 years agoRelated Solutions
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