Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 3, Problem 3.2ME
Mini-Exercise 3.2
LO 3
ROI analysis using the DuPont model Firm K has a margin of 11%, turnover of 1.6, and sales of $2,500,000
Required:
Calculate Firm K’s net income, average total assets, and
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
1.
Chapter 11: Applying Excel
Data
$ 72,000,000
$ 3,600,000
$ 18,000,000
24%
4
Sales
Net operating income
6.
Average operating assets
7
Minumum required rate of return
If your formulas are correct, you should get the correct answers to the following questions.
a. What is the ROI?
ROI
%
b. What is the residual income? (Nagative amount should be indicated by a minus sign.)
Residual income
c. Why is the residual income negative?
2.
5.
Case 1: ROI
You are comparing the performance of two (2) separate divisions, segments A and B, using ROI Analysis.
A
в
P100,000.00 P500,000.00
30,000.00
Sales
Operating Expenses
300,000.00
Net Operating income
70,000.00
200,000.00
Average Operating Assets
10,000.00
40,000.00
Required: Using ROI Analysis, which segment is performing better?
To answer this question, you need to:
1. Compute the ROi of each segment and
2. Compute the components of ROI of each segment
Requirement 2:
Revise the data in your worksheet as follows:
A
1 Chapter 11: Applying Excel
2
3
Data
4 Sales
5
6
7
Net operating income
Average operating assets
Minumum required rate of return
ROI
If your formulas are correct, you should get the correct answers to the following questions.
a. What is the ROI?
$ 24,000,000
$
3,360,000
$
6,000,000
24%
%
Residual income
b. What is the residual income? (Negative amount should be indicated by a minus sign.)
c. Why is the residual income positive?
The ROI exceeds the minimum required rate of return
Chapter 3 Solutions
Accounting: What the Numbers Mean
Ch. 3 - Prob. 3.1MECh. 3 - Mini-Exercise 3.2 LO 3 ROI analysis using the...Ch. 3 - Mini-Exercise 3.3 LO 4 Calculate ROE Firm L had...Ch. 3 - Prob. 3.4MECh. 3 - Mini-Exercise 3.5 LO 6 Calculate current...Ch. 3 - Mini-Exercise 3.6 LO 6 Calculate working capital...Ch. 3 - Exercise 3.7 LO 2 Compare investment alternatives...Ch. 3 - Prob. 3.8ECh. 3 - Exercise 3.9 LO 2 Compare investment alternatives...Ch. 3 - Exercise 3.10 LO 2 Compare investment alternatives...
Ch. 3 - Exercise 3.11 LO 3 ROI analysis using the DuPont...Ch. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Exercise 3.15 LO 6 Effect of transactions on...Ch. 3 - Exercise 3.16 LO 6 Effect of transactions on...Ch. 3 - Calculate profitability measures using annual...Ch. 3 - Prob. 3.18PCh. 3 - Problem 3.19 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.20 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.21 LO 3 Applications of ROI using the...Ch. 3 - Prob. 3.22PCh. 3 - Case 3.23 LO 3. 4, 6, 2 Focus company-analysis of...Ch. 3 - Case 3.24 LO 3, 4, 6, 7 Analysis of liquidity' and...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Exercise 3-11 (Algo) ROI analysis using the DuPont model LO 3 Required: a. Firm A has a margin of 13%, sales of $510,000, and ROI of 18%. Calculate the firm's average total assets. b. Firm B has net income of $72,000, turnover of 1.50, and average total assets of $880,000. Calculate the firm's sales, margin, and ROI. c. Firm C has net income of $136,000, turnover of 1.91, and ROI of 23.20%. Calculate the firm's margin, sales, and average total assets. O Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Firm C has net income of $136,000, turnover of 1.91, and ROI of 23.20%. Calculate the firm's margin, sales, and average total assets. (Round "Margin" answer to 1 decimal place and use the rounded answer for the subsequent computations.) Margin 12.1 O % Sales $ 1,119,655 X Average total assets 2$ 586,207 Xarrow_forwardUse the following information to answer the questions. Company X $ 12,480,000 $ 3,120,000 $ Company Y $ 28,480,000 $ 7,120,000 512,640 8.50% Company Z $ 20,480,000 $ 5,120,000 532,480 10.40% Sales Average operating assets Net operating income Minimum required rate of return 561,600 8.00% Required: 1. Compute the return on investment (ROI) for each company using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each company. 3. Each company is presented with an investment opportunity that would yield a 9% rate of return. a. Assume performance is measured based on ROI. Indicate whether each company will likely accept or reject the investment opportunity. b. Assume performance is measured based on residual income. Indicate whether each company will likely accept or reject the investment opportunity. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg ЗA Req 3B Compute the return on investment (ROI) for each company…arrow_forwardUse the following information to answer the questions. Company X $ 12,480,000 $ 3,120,000 561,600 8.00% Company Y $ 28,480,000 $ 7,120,000 2$ Company Z $ 20,480,000 $ 5,120,000 532,480 Sales Average operating assets Net operating income Minimum required rate of return $ 512,640 8.50% 10.40% Required: 1. Compute the return on investment (ROI) for each company using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each company. 3. Each company is presented with an investment opportunity that would yield a 9% rate of return. a. Assume performance is measured based on ROI. Indicate whether each company will likely accept or reject the investment opportunity. b. Assume performance is measured based on residual income. Indicate whether each company will likely accept or reject the investment opportunity. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req ЗA Req 3B Each company is presented with an investment…arrow_forward
- Data Sales Net operating income Average operating assets Minimum required rate of return Enter a formula into each of the cells marked with a ? below Review Problem: Return on Investment (ROI) and Residual Income Compute the ROI Margin Turnover ROI Compute the residual income Average operating assets $25,000,000 $3,000,000 $10,000,000 25% Net operating income Minimum required return Residual income ? ? ? ? ? ? ?arrow_forwardQuestion 3 You have been presented with the following information : Customer Perspective Actual Performance $6.5 mil Targets a. Total Sales $ 10 mil b. No. of Stock Returns 10 20 Internal Business Perspective a. Maintenance Costs b. No of Workers (production) Targets $200k Actual Performance $50k 30 15 Financial Perspective Actual Performance Targets $4mil a. Net Profit $1mil b. Asset Turnover ratio 15 times 20 times Innovation & Growth Perspective Targets $100k Actual Performance $20k a. Training Costs b. No of Staff (Marketing) 20 12 Other information obtained are customers are frequently complaining and cancelling orders and machines breakdowns. Required : i) Comment on the performance. ii) Propose suggestion to improve.arrow_forwardFor its three investment centers, Indigo Company accumulates the following data: Sales Controllable margin Average operating assets 1 $2,400,000 $4,800,000 $4,800,000 1,560,000 2.208,000 6,000,000 9,600,000 The return on investment i 11 Compute the return on investment (ROI) for each center. % 111 4,080,000 12,000,000 HE %arrow_forward
- Using ROI and RI to evaluate investment centers Consider the following condensed financial statements of Forever Free, Inc. The Company’s target fate of return is 40% Requirements Calculate the company’s ROI. Round all of your answers to four decimal places. Calculate the company’s profit margin ratio. Interpret your results. Calculate the company’s asset turnover ratio. Interpret your results. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. Calculate the company’s RI. Interpret your results.arrow_forwardQUESTION 31 Top management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 1 2 3 Sales $10,000,000 $9,000,000 $6,000,000 Operating income 200,000 300,000 300,000 Average operating assets 2,000,000 3,000,000 3,000,000 Minimum required rate of return = 8% Evaluate the three investment choices: Each investment choice has the same ROI, 10 percent. Choices 2 & 4 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes. Each investment choice has a different ROI. Choices 2 & 3 have a higher residual income then Choice 1, but that is to be expected given that…arrow_forwardAssume a company reported the following information: Sales Minimum required rate of return on average operating assets Turnover Return on investment (ROI) The residual income is closest to: Multiple Choice O O O $14,800. $10,800. $16,800. $20,800. $ 900,000 9.2% 1.5 12%arrow_forward
- Sales Margin = choose your answer... choose your answer... choose your answer... Operating Income 4 Total Assets Sales Revenue choose your answer... choose your answer... レ Return on Investment (ROI) = choose your answer...arrow_forwardQ36 The following results pertain to an investment center. Sales $ 1,633,700 Variable costs 830,000 Traceable fixed costs 93,000 Average investment 1,030,000 Divisional cost of capital (discount rate) 10% How much is the return on investment (ROI) for this investment center? Multiple Choice 78%. 69%. 79%. 13%. 1%.arrow_forwardFor its three investment centers, Monty Company accumulates the following data. 11 $1,960,000 $3,920,000 Controllable margin 1,470,000 2,116,800 Average operating assets 4,900,000 7,840.000 Sales Compute the return on investment (ROI) for each center. Return on investment Madla % ||| $3,920,000 3,724,000 9,800,000 % 111arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Introduction to Divisional performance measurement - ACCA Performance Management (PM); Author: OpenTuition;https://www.youtube.com/watch?v=pk8Mzoqr4VA;License: Standard Youtube License