Question

H&R Block Inc. provides tax preparation services throughout the United States and other parts of the world. These services are provided through two segments: company-owned offices and franchised operations. Recent financial information provided by H&R Block for its company-owned and franchised operations is as follows (in millions): Company-Owned Franchised Operations Revenues $2,651 $ 335 Income from operations 617 86 Total assets 3,930 586 a. Use the DuPont formula to determine the return on investment for each business divisions. Round whole percents to one decimal place and investment turnover to two decimal places. Division Return on Investment Company-Owned % Franchised Operations % b. Determine the residual income for each division, assuming a minimum acceptable income of 15% of total assets. Round minimal acceptable return to the nearest million dollars. Division Residual income Company-Owned $ millions Franchised Operations $ millions c. The Franchised Operations (FO) segment has the return on investment, which is mainly the result of a investment turnover.

Answer 1

Answer:

Explanation:

A) Calculating ROI

For company owned;

Profit margin = 617/2651 = 23.3%

Asset turnover = 2651/3930 = 0.67

Return on investment (ROI) = 23.3*.67 = 15.6%

For Franchised operations;

Profit margin = 86/335 = 25.7%

Asset turnover = 335/586 = 0.57

Return on investment (ROI) = 25.7*.57 = 14.6%

B) Calculating Residual income

For company owned;

Operating income = 617

Minimum operating income = 3930*15% = 590

Residual income = 617-590 = 27

For For Franchised operations;

Operating income =86

Minimum operating income =586*15% = 88

Residual income = 86-88 = -2

C) The Franchised Operations (FO) section has the lowest return on investment, which is principally the result of the Lowest investment turnover.