Question

This brain booster requires you to work backwards to solve ROI (Return on Investment). You will need to: 1. Watch the video on ROLE 2. Watch the video on Residual Income 3. Watch the video on the Expanded ROI formula. E 4. Work Example 10-5, watching the video that goes with it. c Okay, I know that seems like a lot, but really, you need to do all of this to make sure you know concepts especially for the test. So why not learn it now! Asking your friend the steps to calculate this brain booster, without understanding actually HOW to do it, doesn't do you any good! But by now, in this course, you should have figured that out! If you haven't, well, there is not much else to say!!! Question 1 2 pts Residual Income = $23000 Operating income = 33,725 Cost of Capital = 12% What is return on investment? Don't round any intermediate calculations. Enter your answer to one decimal place. Do not use commas, percentage or dollar signs.

Answer 1

Answer: Return on investment = 0.3

Explanation

Residual income = Net operating income - (Average operating assets x Minimum required rate of return)

$23,000 = $ 33,725 - (Average operating assets x 12%)

Average operating assets = ($ 33,725 - 23,000) / 12%

= $ 10,725 / 12%

= $ 89,375

Return on investment = Net operating income / Average operating assets

= $ 33,725 / $ 89,375

= 0.4