Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 5,000,000 \
\hline \text { Operating income } & \$ 1,000,000 \
\hline \text { Total assets } & \$ 10,000,000 \
\hline \text { Current liabilities } & \$ 500,000 \
\hline
\end{array}$$ What is the division's capital turnover?
A) 5%
B) 10%
C) 20%
D) 50%

Question

Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 5,000,000 \
\hline \text { Operating income } & \$ 1,000,000 \
\hline \text { Total assets } & \$ 10,000,000 \
\hline \text { Current liabilities } & \$ 500,000 \
\hline
\end{array}$$ What is the division's capital turnover?
A) 5%
B) 10%
C) 20%
D) 50%

Quizplus · Accepted Answer

Capital turnover is calculated as Sales / Total Assets, which is $5,000,000 / $10,000,000 = 0.5 or 50%.

Assume Division 1 of the XYZ Company Had the Following