Chapter 9, Problem 12E

1.

To determine

To compute: Return on investment.

Explanation of Solution

Formula to calculate return on investment,

$\text{Return}\text{on}\text{investment}=\frac{\text{Net}\text{income}}{\text{Average}\text{assets}}\times 100$ ................(1)

Beverage Division:

Given,
Net income is $\$$ 349 millions.
Average assets are $2,627.5 million.

Substitute $349 million for net income and $2,627.5 million for average assets in the above equation (1).

$\begin{array}{c}\text{Return}\text{on}\text{investment}=\frac{\$349\text{millions}}{\$2,627.5\text{millions}}\times 100\\ =13.28\%\end{array}$

Hence, return on investment is 13.28%.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average}\text{asset}=\frac{\text{Opening}\text{asset}+\text{Closing}\text{asset}}{2}\\ =\frac{\$2,662\text{million}+\$2,593\text{million}}{2}\\ =\$2,627.5\text{million}\end{array}$

Cheese Division:

Given,
Net income is $\$$ 634 million.
Average assets are $4,427.5 million.

Substitute $634 million for net income and $4,427.5 million for average assets in the above equation (1).

$\begin{array}{c}\text{Return}\text{on}\text{investment}=\frac{\$634\text{million}}{\$4,427.5\text{million}}\times 100\\ =14.32\%\end{array}$

Hence, return on investment is 14.32%.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average}\text{asset}=\frac{\text{Opening}\text{asset}+\text{Closing}\text{asset}}{2}\\ =\frac{\$4,455\text{millions}+\$4,400\text{millions}}{2}\\ =\$4,427.5\text{millions}\end{array}$

2.

To determine

To compute: Profit margin.

Explanation of Solution

Formula to calculate profit margin,

$\text{Profit}\text{Margin}=\frac{\text{Net}\text{Income}}{\text{Total}\text{Revenue}}\times 100$ ...................(2)

Beverage Division:

Given,
Net income is $349 million.
Total revenue is $2,681 million.

Substitute $349 million for net income and $2,681 million for total revenue in the above equation (2).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{\$249\text{million}}{\$2,681\text{million}}\times 100\\ =9.28\%\end{array}$

Hence, profit margin is 7.2%.

Cheese Division:

Given,
Net income is $634 million.
Total revenue is $3,925 million

Substitute $634 million for net income and $3,925 million for total revenue in the above equation (2).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{\$634\text{million}}{\$3,925\text{million}}\times 100\\ =16.15\%\end{array}$

Hence, profit margin is 16.15%.

3.

To determine

To compute: Investment turnover.

Explanation of Solution

Formula to calculate investment turnover,

$\text{Investment}\text{turnover}=\frac{\text{Sales}}{\text{Average}\text{invested}\text{assets}}$ ...............(3)

Beverage Division:

Given,
Sales are $2,681 million.
Average assets invested are $2,627.5 million.

Substitute $349 million for sales and $2,627.5 million for average assets invested in the above equation (3).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{\$2,681\text{million}}{\$2,627.5\text{million}}\\ =1.02\end{array}$

Hence, investment turnover is 1.02.

Cheese Division:

Given,
Sales are $3,925 million.
Average assets invested are $4,427.5 million.

Substitute $3,925 million for sales and $4,427.5 million for average assets invested in the above equation (3).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{\$3,925\text{million}}{\$4,427.5\text{million}}\\ =0.88\end{array}$

Hence, investment turnover is 0.88.