The Western Division of Dancy company had net operating income of $154,000 and average invested assets...
The Western Division of Dancy company had net operating income of $154,000 and average invested assets of $559,000. Dancy has a required rate of return of 13.75 percent. Western has an opportunity to increase operating income by $51,000 with a $92,000 investment in assets.
Compute Dancys return on investment and residual income currently and if it undertakes the project.
Return on investment: %
Residual income (Loss). %
Homework Answers
| Return on Investment | |||||
| A | Net Operating Income | 154,000 | |||
| B | Average Invested Assets | 559,000 | |||
| Return On Investment | 27.5% | (154000/559000) | |||
| Residual Income | |||||
| A | Net Operating Income | 154,000 | |||
| B | Average Invested Assets | 559,000 | |||
| C | Required Rate of return | 13.75% | |||
| D | Residual Income | 77,138 | (154000-(559000 X13.75%) | ||
| Proposed Project | |||||
| Return on Investment | |||||
| A | Net Operating Income(Current +Proposed) | 205,000 | (154000+51000) | ||
| B | Average Invested Assets((Current +Proposed)) | 651,000 | (559000+92000) | ||
| Return On Investment | 31.49% | (205000/651000) X 100 | |||
| Residual Income | |||||
| A | Net Operating Income(Current +Proposed) | 205,000 | |||
| B | Average Invested Assets(Current +Proposed) | 651,000 | |||
| C | Required Rate of return | 13.75% | |||
| D | Residual Income | 115,488 | (205000-(651000 X13.75%) | ||
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