Question

P24-22A Using ROI and RI to evaluate investment centers Learning Objective 4 Wolf Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), Inter- national, and Administration. The following is selected divisional information for its two largest divisions: Paint Stores and Consumer. 4. Paint Stores's ROI 34.49% Net Sales Operating Average Revenue 3,980,000 476,000 1,380,000 1,315,000 Income Total Assets Paint Stores Consumer 195,000 1,600,000 Management has specified a 21% target rate of return. Requirements 1. Calculate each division's ROI. Round all of your answers to four decimal places. 2. Calculate each division's profit margin ratio. Interpret your results. 3. Calculate each division's asset turnover ratio. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1 Interpret your results. 5. Calculate each division's RI. Interpret your results, and offer a recommendation for any division with negative RI. 6. Describe some of the factors that management considers when setting its minimum target rate of return.

Answer 1

Answer to first 4 parts of the question Return on Investment (eoy)-operating Income/Average Total Assets Paint Stores Consumer Operating Income Average Total Assets Return on investment (ROI) $476,000 $195,000 ->(a) $1,380,000 $1,600,000 --> (b) 34.49% 12.19% --> (a/ (b) Profit Margin Operating Income/Net Sale Revenue Paint Stores Consumer Operating Income Net Sale Revenue Profit Margin $476,000 $195,000 ->(a) $3,980,000$1,315,000 >(c) 11.96% 14.83%--> (d)=(a) / (c)