Question

Solano Company has sales of $740,000, cost of goods sold of
$490,000, other operating expenses of $46,000, average invested
assets of $2,200,000, and a hurdle rate of 10 percent.

**Required:**

**1.** Determine Solano’s return on investment (ROI),
investment turnover, profit margin, and residual income.
**(Do not round your intermediate calculations. Enter your
ROI and Profit Margin percentage answer to the nearest 2 decimal
places, (i.e., 0.1234 should be entered as 12.34%). Round your
Investment Turnover answer to 4 decimal places.)**

**2.** Several possible changes that Solano could face
in the upcoming year follow. Determine each scenario’s impact on
Solano’s ROI and residual income. (Note: Treat each scenario
independently.) **(Enter your ROI percentage answers to 2
decimal places, (i.e., 0.1234 should be entered as
12.34%.))**

** a.** Company sales and cost of
goods sold increase by 30 percent.

**b.** Operating expenses
decrease by $10,000.

** c.** Operating expenses increase
by 10 percent.

** **

**d.** Average invested assets
increase by $420,000.

**e.** Solano changes its
hurdle rate to 16 percent.

Answer #1

Coolbrook Company has the following information available for
the past year:
River Division
Stream Division
Sales revenue
$
1,201,000
$
1,810,000
Cost of goods sold and operating
expenses
888,000
1,297,000
Net operating income
$
313,000
$
513,000
Average invested assets
$
1,090,000
$
1,550,000
The company’s hurdle rate is 6.51 percent.
Required:
1. Calculate return on investment (ROI) and residual
income for each division for last year. (Enter your ROI
answers as a percentage rounded to two decimal places,...

Fitness Fanatics is a regional chain of health clubs. The
managers of the clubs, who have authority to make investments as
needed, are evaluated based largely on return on investment (ROI).
The company's Springfield Club reported the following results for
the past year: Sales $ 850,000 Net operating income $ 25,500
Average operating assets $ 100,000
6.value: 10.00 pointsRequired information Required: 1. Compute
the Springfield club’s return on investment (ROI). (Round your
Turnover answer to 2 decimal places. Round your...

Wescott Company has three divisions: A, B, and C. The company
has a hurdle rate of 8 percent. Selected operating data for the
three divisions are as follows:
Division A
Division B
Division C
Sales revenue
$
1,260,000
$
939,000
$
920,000
Cost of goods sold
779,000
689,000
668,000
Miscellaneous operating
expenses
65,000
53,000
54,000
Interest and taxes
49,000
42,000
42,000
Average invested assets
8,473,000
1,977,000
3,254,000
Wescott is considering an expansion project in the upcoming year
that will cost...

E10-7 Evaluating Managerial Performance Using Return on
Investment, Residual Income [LO 10-4, 10-5]
Orange Corp. has two divisions: Fruit and Flower. The following
information for the past year is available for each division:
Fruit Division
Flower Division
Sales revenue
$
1,560,000
$
2,340,000
Cost of goods sold and operating
expenses
1,170,000
1,755,000
Net operating income
$
390,000
$
585,000
Average invested assets
$
4,875,000
$
2,437,500
Orange has established a hurdle rate of 6
percent.
Required:
1-a. Compute each...

Luke Company has three divisions: Peak, View, and Grand. The
company has a hurdle rate of 6.51 percent. Selected operating data
for the three divisions follow:
Peak
View
Grand
Sales revenue
$
337,000
$
224,000
$
302,000
Cost of goods
sold
197,000
105,000
182,000
Miscellaneous
operating expenses
44,000
34,000
39,000
Average
invested assets
1,210,000
910,000
1,095,000
Required:
1. Compute the return on investment for each
division. (Enter your ROI
answers as a percentage rounded to two decimal places, (i.e.,
0.1234...

Orange Corp. has two divisions: Fruit and Flower. The following
information for the past year is available for each
division:
Fruit Division
Flower Division
Sales revenue
$
840,000
$
1,260,000
Cost of goods sold and operating expenses
630,000
945,000
Net operating income
$
210,000
$
315,000
Average invested assets
$
2,100,000
$
1,750,000
Orange has established a hurdle rate of 6
percent.
2. Suppose Orange is investing in new technology that
will increase each division’s operating income by $126,000. The...

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
$____________________________________?

Sorrento Corporation’s balance sheet indicates that the company
has $700,000 invested in operating assets. During 2018, Sorrento
earned operating income of $98,000 on $1,400,000 of sales.
Required
Compute Sorrento’s profit margin for 2018.
Compute Sorrento’s turnover for 2018.
Compute Sorrento’s return on investment for 2018.
Recompute Sorrento’s ROI under each of the following independent
assumptions:
(1) Sales increase from $1,400,000 to $1,680,000, thereby resulting
in an increase in operating income from $98,000 to $110,880.
(2) Sales remain constant, but Sorrento...

Adams Corporation’s
balance sheet indicates that the company has $510,000 invested in
operating assets. During 2018, Adams earned operating income of
$52,020 on $1,020,000 of sales.
Required
Compute Adams’s profit
margin for 2018.
Compute Adams’s
turnover for 2018.
Compute Adams’s return
on investment for 2018.
Recompute Adams’s ROI
under each of the following independent assumptions:
(1) Sales increase from $1,020,000 to $1,224,000, thereby resulting
in an increase in operating income from $52,020 to $55,080.
(2) Sales remain constant, but Adams...

Westerville Company reported the following results from last
year’s operations:
Sales
$
1,200,000
Variable
expenses
420,000
Contribution
margin
780,000
Fixed expenses
600,000
Net operating
income
$
180,000
Average operating
assets
$
600,000
This year, the company has a $137,500 investment opportunity
with the following cost and revenue characteristics:
Sales
$
220,000
Contribution margin
ratio
60
% of sales
Fixed expenses
$
99,000
The company’s minimum required rate of return is 20%.
1. What is last year's...

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