Return on investment (ROI): Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows: R O I = O p e r a t i n g I n c o m e A v e r a g e t o t a l a s s e t s R O I ( E x p a n d e d ) = O p e r a t i n g I n c o m e S a l e s × S a l e s A v e r a g e t o t a l a s s e t s Or R O I = P r o f i t M a r g i n R a t i o × A s s e t T u r n o v e r r a t i o Profit Margin Ratio: Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows: P r o f i t M a r g i n = O p e r a t i n g I n c o m e S a l e s Asset Turnover Ratio: Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows: A s s e t T u r n o v e r R a t i o = S a l e s A v e r a g e t o t a l a s s e t s Residual Income (RI): Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows: R e s i d u a l I n c o m e = O p e r a t i n g I n c o m e – ( A v e r a g e a s s e t s × R e q u i r e d r a t e o r R e t u r n ) Requirement-a: To Calculate: The missing amounts

Question

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Answer 1

Question

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

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Answer 2

Question

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

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Answer 3

Question

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

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Answer 4

Question

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

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Answer 5

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Answer 6

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

Answer 7

Chapter 15, Problem 15.18E

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-a:

To Calculate:

The missing amounts

Answer 8

Expert Solution

Answer to Problem 15.18E

The missing amounts are as follows:

	Division X	Division Y	Division Z
Revenues	$ 1,000,000	$ 500,000	$ 1,250,000
Operating Income	$ 120,000	$ 60,000	$ 100,000
Operating Assets	$ 500,000	$ 300,000	$ 625,000
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

The missing amounts are calculated as follows;

	Division X	Division Y	Division Z
Revenues (A)	$ 1,000,000	$ 500,000	$ 1,250,000
		(500000*1)	(625000*2)
Operating Income (B)	$ 120,000	$ 60,000	$ 100,000
		(500000*12%)
Operating Assets (C)	$ 500,000	$ 300,000	$ 625,000
			(100000-25000)/12%
Margin (B/A)	12%	12%	8%

Turnover (A/C)	2	1	2

ROI (B/C)	24%	20%	16%

Residual income (B-C*12%)	$ 60,000	$ 24,000	$ 25,000

Answer 13

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Answer 14

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-b:

To Discuss:

The relative performance of each division

Answer 15

Expert Solution

Answer to Problem 15.18E

The relative performance of each division is as follows:

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income.

Answer 20

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Answer 21

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

Profit Margin = Operating IncomeSales

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

Asset Turnover Ratio = SalesAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

Requirement-c:

To Discuss:

The importance of the Residual Income In decision making

Answer 22

Expert Solution

Answer to Problem 15.18E

Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

The relative performance of each division is explained as follows:

	Division X	Division Y	Division Z
Margin	12%	12%	8%
Turnover	2	1	2
ROI	24%	20%	16%
Residual income	$ 60,000	$ 24,000	$ 25,000

Division X is earning the highest ROI and residual income and Division Z is earning the lowest ROI and residual income. Hence, Residual income provides the readymade indicator for the comparison to find out the most profitable investment option.