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 below: (Loss amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to nearest Company Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return $450,000 $32,000 $160,000 $550,000 $26,630 $151,000 $680,000 52,000 20 | % 181% 181% Percentage 181% 13% 28,800 3,200 Dollar amount $46,000 19,630 Residual income 6,000 7,000

Explanation / Answer

Company A B C Sales $ 450,000 $                             680,000 $ 550,000 Net operating Income $    32,000 $                                52,000 $    26,630 Average operating assets $ 160,000 52,000/18% = 288,889 $ 151,000 Return on asset (ROI) 20% 18% 18% Minimum Required rate of return Percentage 18% $46,000/$288,889 = 16% 13% Dollar Amount $    28,800 $                                46,000 $    19,630 Residual value $      3,200 $                                  6,000 $      7,000

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