Cable Company had the following results for the year just ended:
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: 
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

The formula for return on investment (ROI) is net income divided by average operating assets. We are given the net income ($50,000) and the ROI (20%), so we can solve for the average operating assets.

ROI = net income / average operating assets 
20% = $50,000 / average operating assets 
Average operating assets = $50,000 / 20% = $250,000

However, we need to find the average operating assets, not the total operating assets. We can assume that the operating assets were constant throughout the year, so we can use the simple average of the beginning and ending operating assets to estimate the average operating assets.

Average operating assets = (beginning operating assets + ending operating assets) / 2 
$200,000 = ($X + $150,000) / 2 
$400,000 = $X + $150,000 
$X = $250,000

Therefore, the average operating assets during the year were $250,000, which is closest to option B ($12,500).

Cable Company Had the Following Results for the Year Just