Question

Q2 The Malauskas Company has sales of $7,000,000. It has invested assets of $4,900,000

Cost of Goods Sold of $2,875,000 and operating expenses of 1,920,000. Its minimum rate of return is 14%. (5 points each 20 points total)

Based on this information (round to two decimal places)

What is Malauska’s profit margin? ______________________________?

What is Malauska’s investment turnover? ________________________________?

What is Malauska’s ROI ______________________________________?

What is Milauska’s residual income $____________________________________?

Answer 1

Operating Income = Sales - Cost of Goods Sold - Operating Expenses
Operating Income = $7,000,000 - $2,875,000 - $1,920,000
Operating Income = $2,205,000

Profit Margin = Operating Income / Sales
Profit Margin = $2,205,000 / $7,000,000
Profit Margin = 31.50%

Investment Turnover = Sales / Invested Assets
Investment Turnover = $7,000,000 / $4,900,000
Investment Turnover = 1.43 times

Return on Investment = Profit Margin * Investment Turnover
Return on Investment = 31.50% * 1.43
Return on Investment = 45.05%

Residual Income = Operating Income - Minimum Rate of Return * Invested Assets
Residual Income = $2,205,000 - 14% * $4,900,000
Residual Income = $1,519,000