Question

Homework: Chapter 10 Homework Save Score: 0 of 3 pts 3 of 9 (4 complete) ► HW Score: 30%, 6 of 20 pts E10-20A (similar to) Question Help Zachs, a national manufacturer of lawn mowing and snow-blowing equipment, segments its business according to customer type: Professional and Residential. Assume the following divisional information was available for the past year (in thousands of dollars): E: (Click the icon to view the information.) Read the requirements. Requirement 1. Calculate each division's ROI. First enter the formula, then calculate each division's ROI using the expanded formula. i Requirements ] = ROI 1. Calculate cach division's ROI. 2. Calculate each division's sales margin. Interpret your results. 3. Calculate each division's capital turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude? 5. Calculate each division's residual income (RI). Interpret your results. i Data Table Print Done Sales Operating Income Total Assets Residential $ 420,000 $ 58,800 $ 210,000 Professional S 608,000 $ 152,000 $ 380,000 Assume that management has a 27% target rate of return for each division. Print Done Choose from any drop-down list and then click Check Answer. 20 Partaining Clear All Check Answer

Would you be able to do this step by step? I've tried it several times but the number don't seem to add up to the result i should be getting.

Answer 1

Zachs Requirement a. ROI = Operating Income / Total Assets Residential = 58800 / 210000 = 28% Professional = 152000 / 380000 = 40% Each Division's ROI is very high; however the Professional Division has even higher ROI than the Residential Division. Requirement b. Sales Margin = Operating Income / Sales Residential = 58800 / 420000 = 14% Professional = 152000 / 608000 = 25% The Professional Division is earning about $0.25 on each dollar of sales whereas the Residential Division is only earning about $0.14 on each dollar of sales. The Professional Division higher sales margin helps to account for its higher ROI. Requirement c. Capital Turnover = Sales/Total Assets Residential = 420000 / 210000 = 2 Times Professional = 608000 / 380000 = 1.6 Times The Professional Division is generating about $1.6 of sales for every dollar of asset: The Residential Division is generating about $2 of sales for each dollar of assets. The Residential Division is more efficient. Requirement d. ROI = Sales Margin x Capital Turnover Residential = 14% x 2 = 28% Professional = 25% x 1.6 = 40% Even though residential's efficiency is higher than the professional division, the professional divisions profitability is so much higher that it causes ROI to be much higher than the residential's division. Requiremente. Residual Income = Operating Income - (Total Assets x Target rate of Return) Residential = 58800 - ( 210000 x 27%) = 2100 Professional = 152000 - ( 380000 x 27%) = 49400