1.

value:

20.00 points

Tundra Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below:

Sales $ 18,100,000

Net operating income $ 6,400,000

Average operating assets $ 36,400,000

Required:

1 Compute the margin for Tundra Services Company. (Round your answer to 2 decimal places. Omit the “%” sign in your response.)

Margin %

2 Compute the turnover for Tundra Services Company. (Round your answer to 2 decimal place.)

Turnover

3 Compute the return on investment (ROI) for Tundra Services Company. (Round your intermediate calculations and final answer to 2 decimal places. Omit the “%” sign in your response.)

ROI %

5.

value:

10.00 points

2 The entrepreneur who founded the company is convinced that sales will increase next year by 130% and that net operating income will increase by 360%, with no increase in average operating assets. What would be the company’s ROI? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “%” sign in your response.)

ROI %

6.

value:

10.00 points

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your answers to the nearest whole number. Omit the “$” and “%” signs in your response.)

Company

A B C

Sales $300,000 $740,000 $520,000

Net operating income $ $44,000 $

Average operating assets $168,000 $ $152,000

Return on investment (ROI) 19% 15% %

Minimum required rate of return:

Percentage 14% % 15%

Dollar amount $ $45,000 $

Residual income $ $ $6,000

7.

value:

10.00 points

Selected sales and operating data for three divisions of three different companies are given below:

Division A Division B Division C

Sales $ 5,400,000 $ 9,400,000 $ 8,500,000

Average operating assets $ 1,080,000 $ 4,700,000 $ 1,700,000

Net operating income $ 243,000 $ 799,000 $ 148,750

Minimum required rate of return 14 % 17 % 11 %

Required:

1 Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “%” sign in your response.)

ROI

Division A %

Division B %

Division C %

2 Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

Division A Division B Division C

Residual income $ $ $

3 Assume that each division is presented with an investment opportunity that would yield a rate of return of 16%.

a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

Division A (Click to select)RejectAccept

Division B (Click to select)AcceptReject

Division C (Click to select)RejectAccept

b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Division A (Click to select)AcceptReject

Division B (Click to select)RejectAccept

Division C (Click to select)RejectAccept

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