For Year 1, one division of Apex Company reported operating assets of $5,000,000 and operating income of $750,000. Apex has established a target return on investment (ROI) of 14% for the division.Required: 1) Calculate the division's ROI for Year 1. Did it achieve the target set by the company?2) Assuming that operating assets for Year 2 increase by 10%, by how much would operating income have to increase to reach the target of 14%?
What will be an ideal response?
1) ROI = $750,000 ÷ $5,000,000 = 15.0%. Yes, the division exceeded the company target.
2) Operating assets for Year 2 = $5,500,000. ($5,000,000 × 110%)
5,500,000 × 14% = $770,000 = target operating income
Operating income would have to increase by $20,000 to achieve the target in Year 2.
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