Question

Chapa a national manufacturer of? lawn-mowing and? snow-blowing equipment, segments its business according to customer? type: professional and residential. The following divisional information was available for the past? year

	Net Sales	Operating Income		Average Total Assets
Residential	$500,000	$59,150		$182,000
Professional	1,000,000	152,800		382,000

Management has a

23% target rate of return for each division

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. What can you? conclude?

Answer 1

1)	Division	Net Sales	Operating Income	Average Total Assets	ROI
	Residential	500000	59150	182000	32.5000%
	Professional	1000000	152800	382000	40.0000%
2)	Division	Net Sales	Operating Income	Average Total Assets	Profit Margin
	Residential	500000	59150	182000	11.8300%
	Professional	1000000	152800	382000	15.2800%
	The Professional division has higher profit margin ratio.
3)	Division	Net Sales	Operating Income	Average Total Assets	Asset turnover ratio
	Residential	500000	59150	182000	2.7473
	Professional	1000000	152800	382000	2.6178
4)	Division	Profit Margin	Asset turnover ratio	ROI
	Residential	11.8300%	2.7473	32.500%
	Professional	15.2800%	2.6178	40.000%
	Expanded ROI formula = Profit margin * Asset turnover ratio.