Homework Answers
Investment turnover ratio = Net sales / Equity and Debt. Assuming Zero debt.
Equity = Net sales / investment turnover ratio = 650,000/0.75 = $ 866,666.67.
Equity charge = Equity x cost of equity = 866,666.67 x 10% = $ 86,666.67
Net profit margin = net profit / sales.
Thus net profit = Net profit margin x sales = 30% x 650,000 = $195,000.
Residual income = Net profit (Net income) Less Equity charge = 195,000 - 86,666.67 = $108,333.
Thus answer is a
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Calculate the sales margin, capital turnover, and return on
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2.
Calculate the residual income (RI).
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2.
Calculate the residual income (RI).
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