Question
In: Accounting
10. The Hydride Division of Murdoch Corporation is an investment center. It has $3,000,000 of operating...
10. The Hydride Division of Murdoch Corporation is an investment center. It has $3,000,000 of operating assets. During 2014, the Hydride Division earned operating income of $680,000 on $12,000,000 of sales. Murdoch’s companywide return on investment or desired rate of return is approximately 12% SHOW WORK FOR CREDIT!
What is the ROI?______________________
What is the margin? ____________________
What is the turnover? _____________________
What is the residual income? _______________
Solutions
Expert Solution
ROI = (Net operating income / Average operating assets) * 100
=( $6,80,000 / $30,00,000) * 100
= 22.67%
Or ROI can also be calculated as ;
ROI = Margin × Turnover
= 5.67% x 4
= 22.67%
Margin = Net operating income / Sales
= ($6,80,000 / $1,20,00,000 )*100
= 5.67%
Turnover =Sales / Average operating assets
= $1,20,00,000 / $30,00,000
= 4
Residual Income
Net operating income $6,80,000
Less : Minimum required return $3,60,000
($30,00,000 x 12%)
Residual income $3,20,000
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