Nasser Inc.reported the following results from last year's operations: Last year's return on investment (ROI)was closest to:
A)9.0%
B)47.6%
C)18.9%
D)80.7%

Question

Nasser Inc.reported the following results from last year's operations:  Last year's return on investment (ROI)was closest to:
A)9.0% 
B)47.6% 
C)18.9% 
D)80.7%

Quizplus · Accepted Answer

To calculate ROI, we need to divide the net income (operating income - taxes) by the average invested capital. The average invested capital is calculated by adding the beginning and ending invested capital and dividing by two.

ROI = (Operating Income - Taxes) / Average Invested Capital

Using the numbers given in the table:

Average Invested Capital = (200,000 + 100,000) / 2 = 150,000 
Net Income = Operating Income - Taxes = 28,000 - 6,000 = 22,000

ROI = 22,000 / 150,000 = 0.147 = 14.7%

The closest answer choice to 14.7% is C) 18.9%. ROI = Net operating income ÷ Average operating assets = $1,134,000 ÷ $6,000,000 = 18.9%