The engine divison of the cleveland automotive corporation had sales of $7,200,0

Question

The engine divison of the cleveland automotive corporation had sales of $7,200,000 and operating income of $864,000 last year. The total assets of the engine division were $3,200,000 while current liabilities were $800,000.The cleveland auto corporation's target rate of return is 13% while its weighted average cost of capital is 9%. The effective tax rate for the company is 45%.

Required:

A.calculate sales margin

B.calculate capital turnover

C.calculate the return on investment (ROI)

D.calculate the residential income

Explanation / Answer

A.calculate sales margin = $864000/$7,200,000 = 12% B.calculate capital turnover =Working Capital Turnover Ratio = Cost of Sales /Net Working Capital =$7,200,000-864000/$3,200,000-$800,000 =$6336000/2400000 =2.64 C.calculate the return on investment (ROI) =initial Investment / Earning

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