Answer and Explanation:
The computation is shown below:
1. The return on investment is
As we know that
Return on Investment = Net operating profit ÷ average invested assets × 100
But before that the Net Operating Profit should be determined
<u>
Particulars Peak View Grand
</u>
Sales revenue $332,000 $233,000 $311,000
Less: Cost of
goods sold ($204,000) ($116,000) ($183,000)
Miscellaneous
operating Expenses ($36,000) ($30,000) ($33,000)
Net Profit $92,000 $87,000 $95,000
Now
Return on Investment is
For peak, it is
= $92,000 ÷ $1,310,000
= 7.02%
for view, it is
= $87,000 ÷ $920,000
= 9.46%
for grand, it is
= $95,000 ÷ $1,105,000
= 8.60%
2. The residual income is
We know that
Residual Income = Net operating income - (Minimum required rate of return × average invested assets)
For Peak, it is
= ($92,000 - (5.01% of $1,310,000)
= $26,369
For view, it is
= ($87,000 - (5.01% of $920,000)
= $40,908
And, for grand, it is
= ($95,000 - (5.01% of $1,105,000)
= $39,640
