Question

The following information pertains to the three divisions of Merrymount Company: Division X Division Y Division Z Sales ? ? 1,250,000 Net operating income $ 36,000 $25,000 $ 75,000 Average operating assets 300,000 ? ? Return on investment ? 20% 15% Margin 0.10 0.05 ? Turnover 1.5 ? ? Target ROI 15% 12% 10% What are the average operating assets for Division Y?

Answer 1

Answer:

The average operating assets for Division Y = $125,000

Explanation:

Divisions                                     Y

Sales                                           ?

Net Operating Income           25,000

Average operating assets         ?

Return on Investment               20%

Margin                                       0.05

Turnover                                      ?

Target ROI                                  12%

Since we need average operating assets for division Y, we include those.

We know,

Return on Investment = Net Operating Income/ Average operating assets.

Return on investment is the ratio that is used to measure the company's profitability by using the efficient use of operating assets.

Therefore,

20% = $25,000/Average operating assets

Average operating assets x 20% = $25,000

Average operating assets = $25,000/20%

Average operating assets = $25,000/0.20

Average operating assets = $125,000