Question

The following data are for the Akron Division of Consolidated Rubber, Inc.: Sales $ 800,000 Net operating income $ 50,000 Average operating assets $ 300,000 Stockholders' equity $ 80,000 Residual income $ 20,000 For the past year, the margin used in ROI calculations was:

Answer 1

Answer:

ROI 87.5%

Explanation:

Return on Investment = return /investment

Total return

50,000 perating income + 20,000 residual income = 70,000 income

The asset could been adquire on lease or through liabilities, this is not investment. The investmetn made is the one done by the shareholders.

Stock Holders equity = investment = 80,000

The shareholders invest this amount to generate

70,000 dollars of return

ROI  70,000/80,000 = 87.5%