# Chapter 12 Practice Problems Answered - 1 Data for...

This preview shows pages 1–4. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Explanation: a. Return on investment = Net operating income ÷ Average operating assets = \$159,000 ÷ \$410,000 = 38.78% Residual income = Net operating income – (Average operating assets × Minimum required rate of return) = \$159,000 – (\$410,000 × 0.188) = \$81,920 b. Return on investment = Net operating income ÷ Average operating assets = \$85,950 ÷ \$450,000 = 19.10% Residual income = Net operating income – (Average operating assets × Minimum required rate of return) = \$85,950 – (\$450,000 × 0.188) = \$1,350 The company should invest in this project since its rate of return exceeds the minimum required rate of return. In other words, its residual income is positive. 3. Eber Wares is a division of a major corporation. The following data are for the latest year of operations: Sales \$ 30,600,000 Net operating income \$ 1,179,000 Average operating assets \$ 8,970,000 The company’s minimum required rate of return 18.0 %

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 10/17/2011 for the course ACCT 206 taught by Professor Dr.zachry during the Spring '11 term at Nicholls State.

### Page1 / 16

Chapter 12 Practice Problems Answered - 1 Data for...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online