Using ROI and RI to evaluate investment centersWolf Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information for its two largest divisions: Paint Stores and Consumer.Management has specified a 21% target rate of return.RequirementsCalculate each division’s ROI. Round all of your answers to four decimal places.Calculate each division’s profit margin ratio. Interpret your results.Calculate each division’s asset turnover ratio. Interpret your results.Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.Calculate each division’s RI. Interpret your results, and offer a recommendation for any division with negative RI.Describe some of the factors that management considers when setting its minimum target rate of return. Net SalesOperatingIncomeAverageTotal AssetsRevenue$ 3,980,000 $ 476,0001,315,000195,000$ 1,380,0001,600,000Paint StoresConsumer

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Using ROI and RI to evaluate investment centers

Wolf Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information for its two largest divisions: Paint Stores and Consumer.

Management has specified a 21% target rate of return.

Requirements

Calculate each division’s ROI. Round all of your answers to four decimal places.
Calculate each division’s profit margin ratio. Interpret your results.
Calculate each division’s asset turnover ratio. Interpret your results.
Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.
Calculate each division’s RI. Interpret your results, and offer a recommendation for any division with negative RI.
Describe some of the factors that management considers when setting its minimum target rate of return.

Net Sales
Operating
Income
Average
Total Assets
Revenue
$ 3,980,000 $ 476,000
1,315,000
195,000
$ 1,380,000
1,600,000
Paint Stores
Consumer

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