Ch 10 - Ch 10 Wednesday, February 09, 2011 9:46 AM ROI -...

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Ch 10 Wednesday, February 09, 2011 9:46 AM ROI - Return on Investment RI - Residual Income Transfer Pricing Flexible Budget vs. Static Budget ROI = Net Income/Investment = (Sales/Investment) x (Net Income/Sales) "Capital Turnover Ratio" x "Net Income as a % of Sales" p.47 course pack Maritime Division ROI = Sales/Investment x NI/Sales = 750,000/250,000 x 37500/750,000 3 x 5% = 15% (answer bolded ) Farm Division ROI = Sales/Inv x NI/Sales = ?/200,000 x ?/? 10% = ? X 5% Sales = 400,000 Capital Turnover Ratio = 2 NI = 20,000 Industrial Division ROI = Sales/Inv x NI/Sales = 450,000/? X 13,500/450,000 13.5% = 4.5 x 3% Invested Capital = 100,000 Income percentage of revenues = 3% p.48 Residual Income Preferable to benefit entire organization RI = Net Income - (% desired return)(investment)
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$200,000 - (15%)($1,000,000) RI = $50,000 ROI = NI/Inv = 200,000/1,000,000 ROI = 20% EXAMPLE: 1. ROI = 540,000/3,000,000 = 18% 1. RI = 540,000 - (16%)(3,000,000) = $60,000 1. a- No - current ROI is higher than 17%
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Ch 10 - Ch 10 Wednesday, February 09, 2011 9:46 AM ROI -...

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