Question

Margin, Turnover, ROI Required: 1. Consider the data for each of the following four independent companies. Calculate the missing values in the table below. For margin and ROI, enter your answers as percentages, rounded to two decimal places. For example, the decimal value .03827 would be entered as 3,83" percent. For turnover, enter your answer as a decimal value rounded to two decimal places Revenue $10,000 $48,000 $96,000 19.000 Expenses $8,000 $ 36,000 $90,240 17,860 Operating income $2,000 $12,000 $ 5,760 $ 1,140 Assets $40,000 $ 96,000 $48,000 $9,500 Margin 20 % 25 % 6 % 6.00% Turnover 0.25 0.50 2.00 2 ROL ✓ % 12.5 % % 12 % 2. Assume that the cost of capital is 9 percent for each of the four firms. Compute the residual income for each of the four firms. If the residual income is negative, enter a negative amount $ 1,600 A's residual income B's residual income $ 3,360 C's residual income D's residual income

Answer 1

2. C's residual income: $1,440

Minimum required return = 9% x $48000 = $4320

Residual income = Operating income - Minimum required return = $5760 - $4320 = $1440

D's residual income: $285

Minimum required return = 9% x $9500 = $855

Residual income = Operating income - Minimum required return = $1140 - $855 = $285