Eady Wares is a division of a major corporation. The following data are for the latest year of operations: Sales$19,600,000 Net operating income$470,400 Average operating assets$5,000,000 The company's minimum required rate of return 10%Required:a. What is the division's margin?b. What is the division's turnover?c. What is the division's return on investment (ROI)?d. What is the division's residual income?
What will be an ideal response?
| a. | Margin = Net operating income ÷ Sales = $470,400 ÷ $19,600,000 = 2.4% |
| b. | Turnover = Sales ÷ Average operating assets = $19,600,000 ÷ $5,000,000 = 3.9 |
| c. | ROI = Net operating income ÷ Average operating assets = $470,400 ÷ $5,000,000 = |
| d. | Residual income = Net operating income ? Minimum required rate of return × Average |
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