Question

A family friend has asked for your help in analyzing the operations of three anonymous companies. Supply the missing data in the tabulation below: (Negative amounts should be indicated with a minus sign.) А Company в $6,900,000 224,000 с $ 8,900,000 Sales 11,000,000 Net operating income Average operating assets 6,800,000 4,120,000 17 % Return on investment 14 % 19 % Minimum required rate of return: Percentage 10 % Dollar amount 320,000 Residual income (loss) 204,000

Answer 1

Complete table is shown below:

C A В Company B A C 2 $11,000,000 $6,900,000 $8,900,000 1,292,000 6,800,000 19% 3 Sales 700,400 4,120,000 1,600,000 4 Net operating income 5 Average operating assets 6 Return on investment 7 Minimum required rate of return: 8 Percentage 224,000 17% 14% 16% 10% 20% 320,000 -96,000 1,088,000 204,000 9 Dollar amount 412,000 10 Residual income(loss) 288,400

Missing data can be computed as:

Company A

Net operating income=Average operating assets*return on investment

Net operating income=4,120,000*17%

Net operating income=$700,400

Minimum required rate of return(dollar)=Average operating assets*minimum required rate of return%

Minimum required rate of return(dollar)=4,120,000*10%=412,000

Residual income=Net operating income-minimum required rate of return (dollar)

Residual income=700,400-412,000=288,400

Company B

Average operating assets=Net operating income/return on investment

Average operating assets=224,000/14%

Average operating assets=1,600,000

Minimum required rate of return(%)=(Minimum required rate of return(dollar)/Average operating assets)*100

Minimum required rate of return(%)=(320,000/1,600,000)*100=20%

Residual loss=Net operating income-minimum required rate of return (dollar)

Residual loss=224,000-320,000

Residual loss=-96,000

Company C

Net operating income=Average operating assets*return on investment

Net operating income=6,800,000*19%

Net operating income=1,292,000

Minimum required rate of return(dollar)=Net operating income-residual income

Minimum required rate of return(dollar)=1,292,000-204,000

Minimum required rate of return(dollar)=1,088,000

Minimum required rate of return(%)=(Minimum required rate of return(dollar)/Average operating assets)*100

Minimum required rate of return(%)=(1,088,000/6,800,000)*100

Minimum required rate of return(%)=16%

A 1 Company A 2 В C 11000000 -B5*B6 6900000 8900000 3 Sales 224000 D5*D6 4 Net operating income |ЕC4/C6 5 Average operating assets 6800000 4120000 0.14 0.19 6 Return on investment 0.17 7 Minimum required rate of return C9/C5 -D9/D5 0.1 8 Percentage 9 Dollar amount 10 Residual income (loss) 320000 D4-D10 B5*B8 B4-B9 204000 C4-C9 N