Cable Company had the following results for the year just ended:
$\begin{array}{lccc}
\text { Operating Income } & \$ 2.500 \
\text { Turnover } & 4 \
\text { Return on Investment } & 20 \%
\end{array}$

What were Cable Company's average operating assets during the year?
A) $10,000.
B) $12,500.
C) $50,000.
D) $200,000.

Question

Cable Company had the following results for the year just ended:
 $\begin{array}{lccc}
\text { Operating Income } & \$ 2.500 \
\text { Turnover } & 4 \
\text { Return on Investment } & 20 \%
\end{array}$

What were Cable Company's average operating assets during the year?
A) $10,000.
B) $12,500.
C) $50,000.
D) $200,000.

Quizplus · Accepted Answer

Return on investment (ROI) can be calculated as Operating Income / Average Operating Assets.

From the given information, ROI = 20% = 0.2.
Also, Turnover = Operating Income / Net Sales = 4.

Therefore, Net Sales = Operating Income / Turnover = 2.5 / 4 = $0.625 million.

Using the ROI formula:
0.2 = 2.5 / Average Operating Assets
Average Operating Assets = 2.5 / 0.2 = $12.5 million

Therefore, the average operating assets during the year were $12,500,000 or $12,500 in thousands. Thus, the correct answer is B) $12,500.