A family friend has asked your help in analyzing the operations of three anonymo

Question

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Enter your ROI and Rate of Return Percentage answers to the nearest percentage (i.e., 0.12 should be entered as 12).)

Company A B C

Sales 330,000 700,000 660,000

Net op income _______ 55,000 ______

Avg Op Assets 156,000 _______ 149,000

Return on Invest 16% 15% _______

Minimum required rate of return:

Percentage 14% ________ 9%

Dollar Amount _______ 41,000 ______

Residual Income _______ ________ 7,000

Explanation / Answer

A

RETURN ON INVESTMENT = NET OPERATING INCOME (NOI) / AVG OPERATING ASSETS

16% = NOI / 156000

NET OPEARTING INCOME = $ 24960

REQUIRED RATE OF RETURN IN DOLLAR AMOUNT = 330000*14% => $46200

RESIDUAL INCOME = NET OPEARTING INCOME- ( AVG OP ASSETS* RATE OF RETURN)

=> 24960 - ( 156000 * 14%) = $ 3120

RESIDUAL INCOME => $ 3120

FOR ' B '

RETURN ON INVESTMENT = NET OPERATING INCOME (NOI) / AVG OPERATING ASSETS

15%= 55000 / AVG OP. ASSETS

AVG OP. ASSETS=$ 366667

RATE OF RETURN = 41000 / 700000 => 5.9%

RESIDUL INCOME =  NET OPEARTING INCOME- ( AVG OP ASSETS* RATE OF RETURN)

=> 55000 - ( 366667 * 5.9% )

RESIDUL INCOME => $ 33367

FOR ' C'

REQUIRED RATE OF RETURN IN DOLLAR AMOUNT = 660000 * 9% => $59400

RESIDUL INCOME =  NET OPEARTING INCOME- ( AVG OP ASSETS* RATE OF RETURN)

7000 = NOI - ( 149000 * 9%)

NET OPEARTING INCOME => $20410

RETURN ON INVESTMENT = 20410 / 149000 => 14%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.