The Central Division of National, Inc., has operating income of $16,600 on sales revenue of $179,000....
The Central Division of National, Inc., has operating income of $16,600 on sales revenue of $179,000. Divisional operating assets are $84,600, and management of National has determined that a minimum return of 13% should be expected from all investments.
Required:
a. Using the DuPont model, calculate The Central Division’s margin, turnover, and ROI. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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b. Calculate The Central Division’s residual income.
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Homework Answers
| Operating income | 16,600 | ||
| Sales revenue | 179,000 | ||
| Operating assets | 84,600 | ||
| Minimum expected return | 13% | ||
| Margin= | Operating income/Sales revenue | ||
| Margin= | 16600/179000 | ||
| Margin= | 9.27% | ||
| Turnover= | Sales revenue/Operating assets | ||
| Turnover= | 179000/84600 | ||
| Turnover= | 2.12 | times | |
| ROI= | Turnover * Margin | ||
| ROI= | 2.12*9.27% | ||
| ROI= | 19.62% | ||
| Residual income= | (ROI-minimum expected return)*Operating assets | ||
| Residual income= | (19.62%-13%)*84600 | ||
| Residual income= | 5602 | ||
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The Central Division of National, Inc., has operating income of
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