Zylex Corporation has multiple factories across the United States. The upper man
ID: 2436847 • Letter: Z
Question
Zylex Corporation has multiple factories across the United States. The upper management at Zylex evaluates each factory based on the capital turnover ratio from the DuPont system. The following is information for the factory in Pennsylvania for the past year.
a. Compute the ROI for the Pennsylvania factory using total assets and assets net of depreciation.
b. Find residual income if the company expects a 25 percent return on total assets.
c. Is the Pennsylvania factory performing up to management’s expectations?
Sales $ 3,600,000 Operating expenses 1,200,000 Total assets (prior to subtracting accumulated depreciation) 8,000,000 Accumulated depreciation 2,000,000
Explanation / Answer
a) ROI=NET PROFIT/INVESTMENT*100 sales 3,600,000.00 less:operating expense 1,200,000.00 Net profit 2,400,000.00 total assets before accumulated depreciation 8,000,000.00 less:accumulated depreciation 2,000,000.00 Net Assets 6,000,000.00 ROI using total assets 2400000/8000000*100 30% ROI using assets net of depreciation 2400000/6000000*100 40% b)RESIDUAL INCOME=TOTAL ASSETS*25% =8000000*25% 2,000,000.00 C)Pennsylvania factory IS performing up to management’s expectations because its ROI is more than residual income and companys return is more than its expectation that is its net profit is 2400000 and residual income is 2000000
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