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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Return on investment
The Walt Disney Company has four major sectors, described as follows
• Media Networks: The ABC television and radio network. Disney channel, ESPN, A&E, E!, and Disney.com.
• Parks and Resorts: Wall Disney World Resort. Disneyland, Disney Cruise Line, and other resort properties.
• Studio Entertainment: WaltDisney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax Films, and Buena Vista Theatrical Productions.

• Consumer Products: Character merchandising. Disney stores, hooks, and magazines.
Disney recently reported sector operating income, revenue, and invested assets (in millions) as follows

a.Use the DuPont formula to determine the return on investment for the four Disney sectors. Round profit margin and return on investment to one decimal place and investment turnover to two decimal places.
b.How do the four sectors differ in their profit margin, investment turnover, and return on investment?

To determine

(a)

Concept Introduction:

Return on investment represents the investment returns in regard to revenues. It is used to determine whether the investments are making loss or profit. In other words, the benefit or return from the original cost of investment is termed as return on investment.

The return on investment for the four W.D. Co. sectors using the DuPont formula.

Explanation

The following table represents rates of return on investment using the DuPont formula:

  Amount(in millions)

    DivisionsIncome from operations
      (a)
    Revenue
      (b)
    Invested Assets
      (c)
      (d)=(a)(b)  (e)=(b)(c)Return on investment
      (d)×(e)
    Media networks  $7,793  $23,264  $30,638  33.5%  0.76  25
To determine

(b)

Concept Introduction:

Rate of return on investment represents the investment performance. It is beneficial for investor to compare different investments and select best investment. The benefit or return from the original cost of investment is return on investment.

The reason for thedifference in the four sectors in terms of profit margin, investment turnover, and return on investment.

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