The 2017 income statement for the East Division of Procter Wells Company is as follows: $\begin{array}{lr}
\text { Sales } & \$ 1,800,000 \
\text { Operating expenses } & 1,380,000 \
\text { Net operating income } & 420,000 \
\text { Interest expense } & 120,000 \
\text { Earnings before taxes } & 300,000 \
\text { Income tax expense }(40 \%) & 120,000 \
\text { Net income } & \$ 180,000 \
\hline
\end{array}$ This division's invested capital is $4,000,000.How much is the East Division's return on investment?
A)6.3%
B)5.7%
C)10.5%
D)7.5%

Question

The 2017 income statement for the East Division of Procter Wells Company is as follows: $\begin{array}{lr}
\text { Sales } & \$ 1,800,000 \
\text { Operating expenses } & 1,380,000 \
 \text { Net operating income } & 420,000 \
\text { Interest expense } & 120,000 \
\text { Earnings before taxes } & 300,000 \
\text { Income tax expense }(40 \%) & 120,000 \
\text { Net income } & \$ 180,000 \
\hline
\end{array}$ This division's invested capital is $4,000,000.How much is the East Division's return on investment?
A)6.3%
B)5.7%
C)10.5%
D)7.5%

Quizplus · Accepted Answer

The return on investment is calculated by dividing the net income by the invested capital. In this case, the net income is $180,000 and the invested capital is $4,000,000, so the return on investment is $180,000 / $4,000,000 = 0.063, or 6.3%.

The 2017 Income Statement for the East Division of Procter