B. 1 Chapter 11: Applying Excel 3 Data 4 Sales 5 Net operating income 6 Average operating assets 7 Minimum required rate of return $25,000,000 $3.000,000 $10,000,000 25% 9 Enter a formula into each of the cells marked with a ? below 10 Review Problem: Return on Investment (ROI) and Residual Income 11 12 Compute the ROI 13 Margin 14 Turnover 15 ROI 16 17 Compute the residual income 18 Average operating assets 19 Net operating income 20 Minimum required return 21 Residual income 22 44 Chapter 11 Form Filled in Chapter 11 Form Data Sales .... Net operating income Average operating assets.... Minimum required rate of returm $1,200 $72 $500 15%
The Excel worksheet form that appears below is to be used to recreate the Review Problem pertaining to the Magnetic Imaging Division of Medical Diagnostics, Inc. Download the workbook containing this form from Connect, where you will also receive instructions about how to use this worksheet form.
You should proceed to the requirements below only after completing your worksheet.
Required:
1. Check your worksheet by changing the average operating assets in cell B6 to $8,000,000. The ROI should now be 38% arid the residual income should now be $1,000,000. If you do not get these answers, find the errors in your worksheet and correct them.
Explain why the ROI and the residual income both increase when the average operating assets decrease.
2. Revise the data in your worksheet as follows:
a. What is the ROI?
b. What is the residual income?
c. Explain the relationship between the ROI and the residual income?
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