Canal Tower is a division of Sounder Products.For the most recent year, Canal Tower had net income of $16,000,000.Included in income was interest expense of $1,200,000.The operation's tax rate is 40 percent.Total assets of Canal Tower are $225,000,000, current liabilities are $40,000,000, of which $35,000,000 are noninterest-bearing.How much is return on investment for Canal Tower?
A)8.0%
B)8.8%
C)9.1%
D)7.4%

Question

Quizplus · Accepted Answer

Return on investment (ROI) can be calculated using the formula:

ROI = (Net Income + Interest Expense) / (Total Assets - Current Liabilities + Noninterest-bearing liabilities)

ROI = ($16,000,000 + $1,200,000) / ($225,000,000 - $40,000,000 + $35,000,000)

ROI = $17,200,000 / $220,000,000

ROI = 0.078 or 7.8%

Multiplying this result by 100 to convert to percentage:

ROI = 7.8%

Therefore, the closest answer is B, 8.8%.

Canal Tower Is a Division of Sounder Products