A family friend has asked your help in analyzing the operations of three anonymo
ID: 2578587 • Letter: A
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 shoul 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 $ 560,000 $ 680,000 $ 39,000 $ 390,000 Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: S 157,000 $ 160,000 201% 181% 141% 171% Percentage Dollar amount $ 41,000 4,000 Residual incomeExplanation / Answer
1.
Company
A
B
C
Sales
$390 000
$680 000
$560 000
Net operating income 1
$31 400
$39 000
$26 400
Average operating assists
$157 000
$216 666.67
$160 000
Return on investment (ROI)
20%
18%
14 %
Minimum required rate of return
Percentage
17%
18.92%
14%
Dollar amount 2
$26 690
$41 000
$22 400
Residual income 1-2
$4 710
-2 000
$4 000
ROI = (Net operating assets / Average operating assets) * 100
20%= (N.o.a / 157 000) * 100
N.o.a = $31 400
Minimum required rate of return = Average operating assets * Minimum required rate of return percentage
= 157 000 * 17%
=$26 000
Average operating assets = 39 000 / 18%
=$216 666.67
Minimum required rate of return = 41 000 / 216 667.67
= 18.92%
Minimum required rate of return dollar amount = 160 000 * 14%
=$22 400
Net operating income = 22 400 + 4000
= $26 400
2.
Company in the same Industry
A
B
C
Sales
$5 225 000
$963 000
$ 5 130 000
Net operating income
$888 250
$163 710
$ 256 500
Average operating assets
$ 2 090 000
$ 3 210 000
$2 700 000
Margin
17%
17%
5%
Turnover
2.50
0.3
1.90
Return on investment
42.50%
5.10%
9.50%
Margin = Net operating income / Sales
= 888 250 / 5 225 000
=17%
Turnover = Sales / Average operating assets
= 5 225 000 / 2 090 000
=2.50
Return on investment = (888 250 / 2 090 000)* 100
= 42.50%
Average operating asset =163 710 / 5.10%
= $3 210 000
Margin = 163 710 / 963 000
= 17%
Turnover = 963 000/ 3 210 000
=0.3
Sales = Turnover * Average net operating assets
= 1.9 * 2 700 000
= $ 5 130 000
Net operating income = 5.00% * 5 130 000
= $ 256 500
ROI =256 500 /2 700 000
=9.50 %
Company
A
B
C
Sales
$390 000
$680 000
$560 000
Net operating income 1
$31 400
$39 000
$26 400
Average operating assists
$157 000
$216 666.67
$160 000
Return on investment (ROI)
20%
18%
14 %
Minimum required rate of return
Percentage
17%
18.92%
14%
Dollar amount 2
$26 690
$41 000
$22 400
Residual income 1-2
$4 710
-2 000
$4 000
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