Cornwall Company has two divisions, A and B. Information for each division is as follows: $\begin{array}{lrr}&A&B\
\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \
\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \
\text { Target rate of return } & 15 \% & 18 \% \
\text { Margin } & 10 \% & 20 \% \
\text { Weighted average cost of capital } & 12 \% & 12 \%
\end{array}$ What is the operating asset turnover for A?
A)0.15
B)0.10
C)4.00
D)2.50

Question

Quizplus · Accepted Answer

Operating asset turnover is calculated as Net Sales / Average Operating Assets. Given that Division A has net earnings of $40,000 and a margin of 10%, we can calculate Net Sales as $40,000 / 0.10 = $400,000. With an asset base of $100,000, the operating asset turnover for Division A is $400,000 / $100,000 = 4.00.

Cornwall Company Has Two Divisions, a and B What Is the Operating Asset Turnover for A? A)0

Cornwall Company Has Two Divisions, a and B What Is the Operating Asset Turnover for A?
A)0