ROI and Economic Profit Calculations X Y Z invested capital $1,050,000 $_______
ID: 2502534 • Letter: R
Question
ROI and Economic Profit Calculations
X
Y
Z
invested capital
$1,050,000
$_______
$1,200,000
income
$________
$142,800
$210,000
revenue
$2,310,000
$2,856,000
$_______
return on sales
3.00%
________%
_________%
capital turnover
_________
________
3.5
rate of return o invested capital
_________%
10.50%
__________%
1. Prepare a similar tabular presentation, filling in all blanks.
2. Suppose each division is assessed a capital charge based on a cost of capital of 10% of invested capital. Compute the economic profit for each division.
3. Which division is the best performer? Explain.
X
Y
Z
invested capital
$1,050,000
$_______
$1,200,000
income
$________
$142,800
$210,000
revenue
$2,310,000
$2,856,000
$_______
return on sales
3.00%
________%
_________%
capital turnover
_________
________
3.5
rate of return o invested capital
_________%
10.50%
__________%
Explanation / Answer
PARTICULARS X Y Z invested capital (A) $1,050,000 1360000 $1,200,000 income 69300 $142,800 $210,000 revenue $2,310,000 $2,856,000 4200000 return on sales 3.00% 5 5 capital turnover 2.2 2.1 3.5 rate of return o invested capital 6.6 10.50% 17.5 Cost of capital (B) 10% 10% 10% cost of capital of each division (C = A x B) 105000 136000 120000 income (D) 69300 $142,800 $210,000 Economic Profit (D - C) -35700 6800 90000 Hence, Z is the best performer as economic profit is high. Formulas used : Return on Sales = (Income / sales) x 100 Return on capital = (Income/ Capital Invested) Capital Turnover = Sales / Capital Invested Have interchanged the formulas for getting the missed values
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.