Question

Margin, Turnover, ROI

Required:

1. Consider the data for each of the following four independent companies. Calculate the missing values in the table below. For margin and ROI, enter your answers as percentages, rounded to two decimal places. For example, the decimal value .03827 would be entered as "3.83" percent. For turnover, enter your answer as a decimal value rounded to two decimal places.

	A		B		C		D
Revenue	$12,500		$49,000		$96,000		$fill in the blank 1
Expenses	$10,000		$fill in the blank 2		$90,240		$fill in the blank 3
Operating income	$2,500		$14,700		$fill in the blank 4		$fill in the blank 5
Assets	$50,000		$fill in the blank 6		$48,000		$9,500
Margin	fill in the blank 7	%	30	%	fill in the blank 8	%	6.00	%
Turnover	fill in the blank 9		0.50		fill in the blank 10		2.00
ROI	fill in the blank 11	%	fill in the blank 12	%	fill in the blank 13	%	fill in the blank 14	%

2. Assume that the cost of capital is 9 percent for each of the four firms. Compute the residual income for each of the four firms. If the residual income is negative, enter a negative amount.

A's residual income	$fill in the blank 15
B's residual income	$fill in the blank 16
C's residual income	$fill in the blank 17
D's residual income	$fill in the blank 18

Answer 1

• Requirements asked

	A	B	C	D
Revenue	$12,500	$49,000	$96,000	$19,000
Expenses	$10,000	$34,300	$90,240	$17,860
Operating income	$2,500	$14,700	$5,760	$1,140
Assets	$50,000	$98,000	$48,000	$9,500
Margin	20.00%	30.00%	6.00%	6.00%
Turnover	0.25	0.50	2.00	2.00
ROI	5.00%	15.00%	12.00%	12.00%

--Working

	A	B	C	D
Revenue	12500	49000	96000	=9500*2
Expenses	10000	=49000-14700	90240	=19000-1140
Operating income	2500	14700	=96000-90240	=19000*6%
Assets	50000	=49000/0.5	48000	9500
Margin	=2500/12500	0.3	=5760/96000	0.06
Turnover	=12500/50000	0.5	=96000/48000	2
ROI	=2500/50000	=14700/98000	=5760/48000	0.12

• [2]

	Assets	Expected Operating Income	Actual Operating Income	Residual Income [ANSWERS]
	[A]	[B = A x 9%]	[C]	[D = C - B]
A	$50,000	$4,500	$2,500	($2,000)
B	$98,000	$8,820	$14,700	$5,880
C	$48,000	$4,320	$5,760	$1,440
D	$9,500	$855	$1,140	$285