Question

Evaluating Investment Centers Terry Enterprises, Inc. has two divisions—the Foods division and the Clothes division. Historically,...

Evaluating Investment Centers
Terry Enterprises, Inc. has two divisions—the Foods division and the Clothes division. Historically, Terry has used the division's ROI as the performance measure for the bonus determinations. Terry Foods division has gross total assets of $1,000,000, accumulated depreciation of $350,000, current liabilities of $250,000, and sales of $2,000,000. Foods' operating income is $240,000. Terry Clothes division has gross total assets of $5,000,000, accumulated depreciation of $2,100,000, current liabilities of $1,500,000, and sales of $8,000,000. Clothes' operating income is $790,000.

Use the DuPont formula to compute ROI for each division and for Terry Enterprises as a whole. Use operating income and gross total assets as the measures of income and investment.

Round answers to the nearest whole percentage.

ROI
Foods Answer %
Clothes Answer %
Terry Enterprises Answer %
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Answer #1

Foods Clothes Total
Gross total assets 1000000 5000000 6000000
Accumulated depreciation 350000 2100000 2450000
Current Liabilities 250000 1500000 1750000
Sales 2000000 8000000 10000000
Operating Income 240000 790000 1030000
Equity 400000 1400000 1800000
Operating Income/Sales 12.00% 9.88% 10.30%
240000/2000000 790000/8000000 1030000/10000000
Net sales/Average Total Assets 3.08 2.76 2.82
2000000/(1000000-350000) 8000000/(5000000-2100000) 10000000/(6000000-2450000)
Total Assets/Total Equity 1.63 2.07 1.97
(1000000-350000)/400000 (5000000-2100000)/1400000 (6000000-2450000)/1800000
ROI 60% 56% 57%
12%*3.08*1.63 9.88%*2.76*2.07 10.30%*2.82*1.97

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