Question

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below. (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent and other amounts to whole dollars.) points Company $ 320,000 $ 540,000 710,000 50.000 S Sales Not operating income Average operating assets Return on investment (ROI) Minimum required rate ofretum S 151.000 150 000 References 18 Percentage Dolar amount Residual income

Answer 1

Calculate the missing figures as follows: Company А в с $320,000 $710.000 $540,000 $22,650 $50,000 $22.000 S151,000 $277,778 S150,000 15% 18% 18% 15% 3 Sales 4 Net operating income 5 Average operating assets 6 Return on investment(ROI) 7 Minimum required rate of return 8 Percentage 9 Dollar amount 10 Residual income O 000 13% $19.630 $3.020 15% $43.000 $7,000 12% $18.000 $4,000 Formulae: 1 2 3 Sales 4 Net operating income 5 Average operating assets 6 Return on investment (ROI) 7 Minimum required rate of return 8 Percentage 9 Dollar amount 10 Residual income Company A B C 320000 710000 540000 =B5 B6 50000 =D10+D9 151000 =C4/C6 150000 10.15 0.18 =D4/D5 0.13 =C9/C5 10.12 =B5*B8 43000 =D5*D8 =B4-B9 =C4-C9 4000

Calculations: Company A Calculate the missing figures as follows: Net operating income = Average operating assets Return on investment % = $ 151,000x15% Net operating income = $22,650 Minimum required rate of return = (Average operating assets]*[minimum required rate of return) =$151,000x13% Minimum required rate of return=$19.630 Residual income = Net operating income - Minimum required rate of return =$22.650-$19.630 Residual income=$3,020 Company B: Net operating income = Average operating assets x Return on investment % Net operating income Average operating assets = Return on investment% $50,000 18% Average operating assets=$277,778 Miminum required rate of retum ( Minimum required rate of return Average operating assets $43,000 $277.778 =15%

Residual Income Net operating income - Minimum required rate of retum =$50,000-$43,000 =$7,000 Company C Minimum required rate of return = (Average operating assets]*[minimum required rate of return) =$150,000x12% =$18,000 Net operating income = Residual income + Minimum required rate of return = $4.000+$18,000 Net operating income=$22.000 Net operating income Return on Investment = Average operating assets $22,000 -X100 $150.000 = 15%