Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Lastyear the company had net operating income of $500,000 on sales of $1,900,000. The company's average operating assets for theyear were $2,100,000 and its minimum required rate of return was 15%.Required:Compute the company's residual income for the year.Residual income

Residual income is the amount of money or income which is in excess of the net operating income. It…

Answered: Juniper Design Limited of Manchester,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: $ 170,000 $ 380,000 Sales revenues Variable expenses $350,000 $ 250,000 $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 15% Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor using tables Required: 1 Calculate the payback period for each product 2 Calculate the net present value for each product. 3. Calculate the internal rate of return for each product. 4 Calculate the profitability Index for…
Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below: Sales Net operating income Average operating assets Required: 1. Compute the margin. Note: Round your answer to 2 decimal places. 2. Compute the turnover. Note: Round your answer to 2 decimal places. 3. Compute the return on investment (ROI). Note: Round your intermediate calculations and final answer to 2 decimal places. 1. Margin 2. Turnover 3. ROI $ 18,200,000 $ 4,500,000 $ 35,600,000 % %
The Western Division of Claremont Company had net operating income of $148,000 and average invested assets of $558,000. Claremont has a required rate of return of 13.00 percent. Western has an opportunity to increase operating income by $40,000 with a $85,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. Note: Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answers to the nearest whole dollar. Return on Investment (ROI) Residual Income (Loss) Current Proposed Project %
Polymer Coating Enterprises has an operating income of $100,000 on revenues of $1,000,000. Average invested assets are $500,000 and the Company has an 8% cost of capital. What is the residual income?
The Casket Division of Saal Corporation had average operating assets of $1,020,000 and net operating income of $205,200 in January. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 14%. Required: What was the Casket Division's residual income in January?
Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $430,000 on sales of $2,200,000. The company’s average operating assets for the year were $2,400,000 and its minimum required rate of return was 14%. Required: Compute the company’s residual income for the year.
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 19% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 190,000 $ 400,000 Annual revenues and costs: Sales revenues $ 270,000 $ 370,000 Variable expenses $ 128,000 $ 178,000 Depreciation expense $ 38,000 $ 80,000 Fixed out-of-pocket operating costs $ 72,000 $ 52,000 The company's discount rate is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5.…
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,360,000; rents are estimated at $174,080 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…
The Western Division of Claremont Company had net operating income of $154,000 and average invested assets of $557,000. Claremont has a required rate of return of 14.75 percent. Western has an opportunity to increase operating income by $48,000 with a $84,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. Note: Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answers to the nearest whole dollar. Return on Investment (ROI) Residual Income (Loss) Current % Proposed Project
2. An entrepreneur will open a wet seasoning business. The required investment is Rp 77,500,000.00 at the beginning of the year. Operating costs include raw materials, space rental, operators and other costs amounting to IDR 47,000,000.00 in the first year and are expected to continue to increase. An increase of 5% from the previous year. The operating life is estimated to be the same as the economic life of the machines, which is an average of 7 years with a salvage value of IDR 1% of the investment cost. It is known that the levelithe current rate is 15%. The net income earned is IDR 70,000,000.00/year. Determine the feasibility of the business with the analysis: a. Cash flow table b. NPV c. IRR d. Net B/C ratio e. Conclusion?
Imagination Corporation uses residual income to evaluate the performance of its divisions. Imagination's minimum required rate of return is 10%. In April, the Commercial Products Division had average operating assets of $105,000 and net operating income of $9,700. What was the Commercial Products Division's residual income in April? Multiple Choice $970. $(970). $800. $(800).
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 290,000 $ 500,000 Annual revenues and costs: Sales revenues $ 350,000 $ 450,000 Variable expenses $ 160,000 $ 210,000 Depreciation expense $ 58,000 $ 100,000 Fixed out-of-pocket operating costs $ 80,000 $ 60,000 The company’s discount rate is 16%. 4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.) 5. Calculate the simple rate of return for each product. (Round percentage answers to 1…

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