The following data pertain to the Whalen Division of Northern Industries. The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
-The minimum required rate of return in Year 1 was:
A)18%
B)17%
C)16%
D)15%

Question

The following data pertain to the Whalen Division of Northern Industries.  The margin at Whalen was exactly the same in Year 2 as it was in Year 1.
-The minimum required rate of return in Year 1 was:
A)18% 
B)17% 
C)16% 
D)15%

Quizplus · Accepted Answer

Margin = Net operating income F1F1F1S1F1F1F10 Sales
Net operating income = Sales F1F1F1S1F1F1F10 Margin
= $300,000 F1F1F1S1F1F1F10 8% = $24,000
ROI = Margin F1F1F1S1F1F1F10 Turnover
Margin in Year 2 = ROI in Year 2 F1F1F1S1F1F1F10 Turnover in Year 2
= 9.6% F1F1F1S1F1F1F10 1.2 = 8%
ROI in Year 1 = Margin in Year 1 F1F1F1S1F1F1F10 Turnover in Year 1
ROI in Year 1 = Margin in Year 2 F1F1F1S1F1F1F10 Turnover in Year 1
= 8% F1F1F1S1F1F1F10 6 = 48%
ROI = Net operating income F1F1F1S1F1F1F10 Average operating assets
48% = $24,000 F1F1F1S1F1F1F10 Average operating assets
Average operating assets = $24,000 F1F1F1S1F1F1F10 48% = $50,000
Residual income = Net operating income - Average operating assets F1F1F1S1F1F1F10 Minimum required rate of return
$16,000 = $24,000 - $50,000 F1F1F1S1F1F1F10 Minimum required rate of return
$50,000 F1F1F1S1F1F1F10 Minimum required rate of return = $24,000 - $16,000
Minimum required rate of return = $8,000 F1F1F1S1F1F1F10 $50,000 = 16%

The Following Data Pertain to the Whalen Division of Northern