Asked by Dalton Gross on May 06, 2024
Verified
Fabbri Wares is a division of a major corporation. The following data are for the latest year of operations:
Required:a. What is the division's return on investment (ROI)?b. What is the division's residual income?
Return On Investment (ROI)
A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the net profit from the investment by its original cost.
Residual Income
The income that remains after subtracting all required expenses, including a minimum target return, from operating income.
- Calculate the ROI for a designated division of a corporation.
- Execute calculations and provide interpretations for financial performance metrics, including margin, turnover, and residual income.
Verified Answer
RH
Rayan HassounaMay 12, 2024
Final Answer :
a.Return on investment = Net operating income ÷ Average operating assets = $1,163,880 ÷ $3,000,000 = 38.8%b.Residual income = Net operating income − Minimum required rate of return × Average operating assets = $1,163,880 − (14% × $3,000,000) = $743,880
Learning Objectives
- Calculate the ROI for a designated division of a corporation.
- Execute calculations and provide interpretations for financial performance metrics, including margin, turnover, and residual income.