The following information for companies X, Y, and Z is incomplete. Supply the mi
ID: 2380382 • Letter: T
Question
The following information for companies X, Y, and Z is incomplete. Supply the missing data. (Negative amounts should be indicated by a minus sign. Round your return on investment to 1 decimal place. Omit the "$" and "%" signs in your response).
Company X Company Y Company Z Operating income $ 220,000 $ $ Sales $ $ $ Invested capital $ $ 6,000,000 $ 32,000,000 Return on sales 32 % 40 % % Capital turnover 20 % % 30 % Return on investment % 20 % 15 % Minimum acceptable return 10 % 12 % % Residual income $ $ $ 960,000
Explanation / Answer
COMPANY - X
RETURN ON SALES = Operating income/Sales * 100
32 = 220000/Sales * 100
Sales= 687500
Capital turnover =Sales/Invested capital * 100
20= 687500/Invested capital * 100
Invested capital = 3437500
Return on investment = Operating income/Invested capital * 100
Return on investment = 220000/3437500 * 100
=6.4%
Minimum acceptable return = 10% OF 3437500
=343750
Residual income= Operating income -Minimum acceptable return
=220000-343750
= -123750
COMPANY - Y
Residual income = (20-12)% OF 6,000,000
=48000
Minimum acceptable return =12% on 6000000
=720000
LET SALES BE x
Return on sales = 40% of x
=0.4x
Residual income =0.4x-720000
48000 = 0.4x-720000
x = 1920000
Sales = 1920000
Operating income = 40% OF SALES
=40% OF 1920000
=768000
Capital turnover = Sales/Invested capital * 100
=1920000/6000000 * 100
=32%
COMPANY - C
Capital turnover = Sales/Invested capital * 100
30= Sales/32000000 * 100
SALES = 9600000
Operating income = 15% OF 32000000
=4800000
Residual income= Operating income -Minimum acceptable return
960000 = 4800000 - Minimum acceptable return
Minimum acceptable return =3840000
Minimum acceptable return=3840000/32000000 * 100
=12%
RETURN ON SALES = Operating income/Sales * 100
=4800000/9600000 * 100
=50%
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