Asked by Edgar Quinones on Jul 20, 2024
Verified
The West Division of Cecchetti Corporation had average operating assets of $693,000 and net operating income of $102,500 in August. The minimum required rate of return for performance evaluation purposes is 16%.What was the West Division's minimum required return in August?
A) $102,500
B) $110,880
C) $16,400
D) $127,280
Minimum Required Rate
The lowest return on investment that an investor is willing to accept, often influenced by the risk-free rate and the investor's risk tolerance.
Net Operating Income
The profit from a company's operations after subtracting operating expenses from gross income.
Operating Assets
Assets utilized in the day-to-day operations of a business to generate revenue, including machinery, buildings, and equipment.
- Understand the significance of the minimum required rate of return for making investment choices.
- Analyze the performance of a division by examining financial parameters including net operating income, revenue, and average operating assets.
Verified Answer
KC
Katherine CalimlimJul 23, 2024
Final Answer :
B
Explanation :
The minimum required return for performance evaluation purposes can be calculated by multiplying the average operating assets by the minimum required rate of return.
Minimum required return = $693,000 x 16% = $110,880
Therefore, the West Division's minimum required return in August was $110,880. Option B is the correct answer.
Minimum required return = $693,000 x 16% = $110,880
Therefore, the West Division's minimum required return in August was $110,880. Option B is the correct answer.
Learning Objectives
- Understand the significance of the minimum required rate of return for making investment choices.
- Analyze the performance of a division by examining financial parameters including net operating income, revenue, and average operating assets.