Return on Investment and Residual IncomeJohnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets:Net Income AssetsLas Vegas $1,260,000 $4,000,000Dallas1,500,000 8,000,000Tampa2,340,000 12,000,000a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI.Round ROI to the nearest whole percentage.ROILas VegasDallasTampa0%0%0%Las Vegas $DallasTampab. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income.RIRankRank000♦

ROI means return on investments. This is one of profitability ratio being used in business. This…

Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets: Net Income Assets Las Vegas $1,260,000 $4,000,000 Dallas Tampa a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI. Round ROI to the nearest whole percentage. ROI Las Vegas Dallas Tampa 1,500,000 8,000,000 2,340,000 12,000,000 Las Vegas $ Dallas Tampa 0% 0% 0% Rank → ◆ b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income. RI Rank → 0 0 0 ◆

Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets: Net Income Assets Las Vegas $1,260,000 $4,000,000 Dallas Tampa a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI. Round ROI to the nearest whole percentage. ROI Las Vegas Dallas Tampa 1,500,000 8,000,000 2,340,000 12,000,000 Las Vegas $ Dallas Tampa 0% 0% 0% Rank → ◆ b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income. RI Rank → 0 0 0 ◆

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Alpesh
Vishnu
please answer do not image format
a. Compute ROI for Division B.b. Compute residual income for Division A.c. Division B could increase its profit by $80,000 by increasing its investment by $300,000. Computeits total residual income. d. Division A could increase its return on sales by one percentage point, while keeping the same totalsales. Compute its ROI.e. Division A could increase its sales so that its asset turnover increased by one time, while holdingtotal assets constant. Compute its ROI.
kai.8
The following data are available for two divisions of Ryan Enterprises: Alpha Division Beta Division Division operating profit $ 7,360,000 $ 1,240,000 Division investment 32,160,000 3,160,000 The cost of capital for the company is 7 percent. Ignore taxes. Required: a-1. Calculate the ROI for both Alpha and Beta divisions. a-2. If Ryan measures performance using ROI, which division had the better performance? b-1. Calculate the EVA for both Alpha and Beta divisions. (The divisions have no current liabilities.) b-2. If Ryan measures performance using economic value added, which division had the better performance? c. Would your evaluation change if the company’s cost of capital was 10 percent, when evaluated by ROI? when evaluated by EVA?
A-1. Evaluate the performance of the two divisions assuming BMI users return on investment (ROI). A-2. Which division had the better performance?
calculate all the missing values a, b, c, d, e, f, g, and h. Madison Corp. has a hurdle rate/required rate of return of 9%. Operating Average income (c) Total assets $115,000 $800,000 (a) (f) $175,000 (e) Return on Residual investment income (ROI) $1,350,000 17% $46,800 (h) $750,000 (g) 13% (RI) (b) (d) $31,000 $36,000 ?
Assume the Hiking Shoes division of the Simply Shoes Company had the following results last year (in thousands). Management's target rate of return is 10% and the weighted average cost of capital is 30%. Its effective tax rate is 40%. Sales Operating income Total assets Current liabilities What is the division's Residual Income (RI)? OA. $100,000 O B. $4,400,000 Ⓒ C. $700,000 O D. $280,000 $11,000,000 1,100,000 4,000,000 780,000
go.4
Assume the Hiking Shoes division of the Simply Shoes Company had the following results last year (in thousands). Management's target rate of return is 30% and the weighted average cost of capital is 5%, its effective tax rate is 35%. Sales Operating income Total assets Current liabilities What is the division's Residual Income (RI)? ⒸA. $280,000 OB. $1,750,000 OC. $800,000 OD. $1,800,000 $5,000,000 2,000,000 4,000,000 840,000
Evaluating Investment Centers Terry Enterprises, Inc. has two divisions-the Foods division and the Clothes division. Historically, Terry has used the division's ROI as the performance measure for the bonus determinations. Terry Foods division has gross total assets of $1,000,000, accumulated depreciation of $350,000, current liabilities of $250,000, and sales of $2,000,000. Foods' operating income is $320,000. Terry Clothes division has gross total assets of $5,000,000, accumulated depreciation of $2,100,000, current liabilities of $1,500,000, and sales of $8,000,000. Clothes' operating income is $870,000. Use the DuPont formula to compute ROI for each division and for Terry Enterprises as a whole. Use operating income and gross total assets as the measures of income and investment. Round answers to the nearest whole percentage. ROI Foods Clothes Terry Enterprises % % %