The Eastern Division of Acme, Inc. has operating income of $32,000 on sales revenue of $320,000....
The Eastern Division of Acme, Inc. has operating income of $32,000 on sales revenue of $320,000. Divisional operating assets are $160,000, and management of Acme has determined that a minimum return of 10% should be expected from all investments.
a. Using the DuPont model, calculate Acme's margin, turnover, and ROI.
b. Calculate Acme's residual income
c. Should Acme accept a project that is expected to achieve a 15% ROI if it is being evaluated using residual income?
Homework Answers
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Margin = Net operating income/sales = 32,000/320,000 = 10% Turnover = Sales/Operating assets = 320,000/160,000 = 2 ROI = margin * turnover = 10*2 = 20% |
|
Residual income = Operating income - Required return = 32,000 - (160,000*10%) = 16,000 |
| C. |
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The Eastern Division of Acme, Inc. has operating income of
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Division B
Division C
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$
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$
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$
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$
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$
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$
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Net operating income
$
516,800
$
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$
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7.50
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Division 1: sales, $120,000; operating income, $36,000; operating
assets, $300,000.
Division 2: sales, $80,000; operating income, $40,000; operating
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ABC Company expects a minimum return of 10% should be earned from
all investments.
Required:
a. Prepare ABC Company’s ROI analysis using the DuPont
model for each division. (Round Turnover rate answers to
one decimal place.)
Division 1 Division 2 DuPont Performance Analysis: Revenues Operating...
Selected sales and operating data for three divisions of
different structural engineering firms are given as follows:
Division A
Division B
Division C
Sales
$
12,920,000
$
28,920,000
$
26,150,000
Average operating assets
$
3,230,000
$
7,230,000
$
5,230,000
Net operating income
$
516,800
$
462,720
$
758,350
Minimum required rate of return
7.00
%
7.50
%
14.50
%
Required:
1. Compute the return on investment (ROI) for each division
using the formula stated in terms of margin and turnover....
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