Question

Ten years ago, Ann and Marie purchased a group of wellness centers that are located in several cities. Ann had a 60% interest and Marie 40%. Two years ago, Marie decided to sell her complete interest in all the wellness centers to John. Ann serves as CEO delegating the day to day operations to John who is the VP of Operations. John has two direct reports, Jamie and Gary. Jamie, who has been with the company for many years is responsible for the Wrentham, Milford and Franklin locations. To help her with her work load, she has an assistant, Tim, who does a lot of the day-to-day work. Gary, is responsible for the Portland and Stamford locations and has an assistant, Jenny. Neither Tim nor Jenny have anyone working for them.

Based on the current executive compensation plan, managers can earn a bonus based on meeting a having a positive residual income. At this point, Ann is proposing a change in the executive compensation to have bonuses computed based on profit. To aid her in this analysis Ann asked an accountant to summarize key financial results from the prior year as shown below:

	Wrentham	Milford	Franklin	Portland	Stamford
Revenue	$850,000	$500,000	$400,000	$1,050,000	$900,000
Net operating income	$51,000	$60,000	$40,000	$84,000	$60,000
Average operating assets	$425,000	$300,000	$250,000	$525,000	$400,000
Stockholders’ equity	$361,250	$255,000	$212,500	$446,250	$340,000
Residual income (loss)	($8,500)	?	?	?	?
Margin	?	?	?	?	?
Turnover	?	?	?	?	?
ROI	?	?	?	?	?

Required: Answer each of the following questions associated with the information provided. In answering the numerical questions round your final answer to at least two decimal points. For example, a margin of 10.4115% would be 10.41%. A turnover of 3.3621 would be 3.36.

7.	Wrentham Margin is
8.	Wrentham Turnover is
9.	Milford Margin is
10.	Milford Turnover is
11.	Franklin Margin is
12	Franklin Residual Income is
13.	Stamford Margin is
14.	Stamford Residual Income is
15.	Portland Margin is
16.	Portland Turnover is

Answer 1

7.	Wrenthum Margin is	6 %
8.	Wrenthum Turnover is	2 times
9.	Milford Margin is	12 %
10.	Milford Turnover is	1.67 times
11.	Franklin Margin is	10 %
12.	Franklin Residual Income is	$ 5,000
13.	Stamford Margin is	6.67 %
14.	Stamford Residual Income is	$ 4,000
15.	Portland Margin is	8 %
16.	Portland Turnover is	2 times

Margin = Net Operating Income / Revenue

Turnover = Revenue / Average Operating Assets

Residual Income = Net Operating Income - ( Average Operating Assets x 14 % )

Cost of capital for the firm = $ ( 51,000 + 8,500 ) / $ 425,000 * 100 = 14 %