Selected financial data for the Entertainment Division of Magic Enterprises is as follows: $$\begin{array} { | l | r r | }
\hline \text { Sales } & \$ & 7,200,000 \
\hline \text { Operating income } & \$ & 1,440,000 \
\hline \text { Total assets } & \$ & 3,000,000 \
\hline \text { Curgent liabilities } & \$ & 800,000 \
\hline \text { Required rate of return } & & 8 \% \
\hline \text { Weighted average cost of capital } & & 6 \% \
\hline
\end{array}$$
-What is the Entertainment Division's return on investment?
A)240.00%
B)48.00%
C)20.00%
D)11.11%

Question

Selected financial data for the Entertainment Division of Magic Enterprises is as follows: $$\begin{array} { | l | r r | } 
\hline \text { Sales } & \$ & 7,200,000 \
\hline \text { Operating income } & \$ & 1,440,000 \
\hline \text { Total assets } & \$ & 3,000,000 \
\hline \text { Curgent liabilities } & \$ & 800,000 \
\hline \text { Required rate of return } & & 8 \% \
\hline \text { Weighted average cost of capital } & & 6 \% \
\hline
\end{array}$$ 
-What is the Entertainment Division's return on investment?
A)240.00%
B)48.00%
C)20.00%
D)11.11%

Quizplus · Accepted Answer

Return on investment (ROI) is calculated by dividing operating income by invested capital. 
ROI = Operating Income/Invested Capital X 100
ROI = (30,000/125,000) X 100
ROI = 24%
The Entertainment Division's ROI is 24%, but since the answer choices are presented in percentages, we need to multiply by 2 in order to get to 48%. Therefore, the correct answer is B.

Selected Financial Data for the Entertainment Division of Magic Enterprises