The Marine Division of Pacific Corp. has average invested assets of $110,000,000. Sales revenue of $50,250,000 results in an operating income of $9,967,000. The hurdle rate is 7%. a. Calculate the return on investment. b. Calculate the profit margin. c. Calculate the investment turnover. d. Calculate the residual income.
What will be an ideal response?
a. 9.06% = $9,967,000/$110,000,000
b. 19.83% = $9,967,000/$50,250,000
c. 0.4568 = $50,250,000/$110,000,000
d. $2,267,000 = $9,967,000 - (7% × $110,000,000)
ROI = Operating income/Average invested assets. Profit margin = Operating income/Sales revenue. Investment turnover = Sales revenue/Average invested assets. Residual income = Operating income - Hurdle rate × Average invested assets.
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