Answer:
1.
ROI=6.44%
Investment Turnover=0.32
Profit Margin=20%
Residual Income (RI) = -$46,000
2.
a) ROI =9.28%, RI= $5,000
b) ROI=7.19%, RI= -$32,500
c) ROI=6.15%, RI= -$51,400
d) ROI=5.4%, RI= -$76,600
e) ROI=6.44%, RI= -$154,000
Explanation:
1. ROI is calculated as (Operating profit/Average net asset/Investment)*100.
Investment turnover is calculated as Net sales/Average net asset/Investment.
Profit Margin is calculated as Operating profit/Total sales.
Residual Income is calculated as Operating profit-(Average net asset/Investment * Hurdle rate).
Note: Operating profit= Sales-(Cost of goods sold+Operating expenses)
2.
a) 30% increase in sales & cost of goods sold will increase the ROI & Residual income.
b) Decrease in operating expense will increase the operating income, thereby increasing the ROI & RI.
c) Increase in operating expense by 10% will reduce the operating income, thereby decreasing the ROI & RI.
d) Increase in average invested assets by $340,000 will reduce the ROI & RI.
e) Change in hurdle rate will not change the ROI; however, it will decrease the residual income (RI).
