2. Consider the following condensed financial statements ofRequirements Money Sa
ID: 2534413 • Letter: 2
Question
2. Consider the following condensed financial statements ofRequirements Money Safe, Inc. The company's target rate of return is 30%; (Click the icon to view the comparative balance sheet.) 2(Click the icon to view the income statement.) 1. Calculate the company's ROI. Round all of your answers 2. Calculate the company's profit margin ratio. Interpret 3. Calculate the company's asset turnover ratio. Interpret 4. Use the expanded ROl formula to confirm your results 5. Calculate the company's RI. Interpret your results. to four decimal places your results. your results. from Requirement 1. Interpret your results. Requirement 1. Calculate the company's ROl. Round all of your answers to four decimal places. Begin by selecting the formula to calculate return on investment (ROI), and then enter the amounts to calculate the company's Rol. (Round your calculations to four decimal places and enter your answer as a percent, X.XX%) ROIExplanation / Answer
Requirement 1 – Company’s ROI
ROI = [ Net Income / Average Total Assets ] x 100
= $1,72,900 / [ ($6,06,000 + $3,94,000)/2] x 100
= [ $1,72,900 / $5,00,000 ] x 100
= 34.58%
Requirement 2 – Company’s Profit Margin Ratio
Profit Margin Ratio = [ Net Income / Sales ] x 100
= [ $1,72,900 / $60,00,000 ] x 100
= 2.8817
Requirement 3 – Company’s Asset Turnover Ratio
Asset Turnover Ratio = Sales / Average Total Assets
= $60,00,000 / [ ($6,06,000 + $3,94,000)/2]
= $60,00,000 / $5,00,000
= 12 Times
Requirement 4 – Expanded ROI Formula
Asset Turnover x Profit Margin = ROI
12 Times x 2.8817% = 34.58%
Requirement 5 – Company’s Residual Income (RI)
Residual Income = Net Income – Minimum Required Return
= $1,72,900 – [ $5,00,000 x 34.58% ]
= $1,72,900 - $172900
= 0 (Zero)
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