Expert Answer
Average Operating Assets = (Beginning Balances + Ending Balances )/2Average Operating Assets = ($1,860,000 +$1,900,000 )/2Average Operating Assets = $1,880,000Required 2 :Compute the Company's Margin , Turnover and Return on Investment (ROI) for Last Year :Margin = Net Operating Income / SalesNet Operating Income = $611,000Sales = $4,700,000Margin = $611,000 /$4,700,000Margin = 13% Turnover = Sales / Average Opearting Assets Sales = $4,700,000Average Opearting Assets = $1,880,000Turnover = $4,700,000 /$1,880,000Turnover = 2.5Return on Investment (ROI) = Margin* Turnover Margin = 13% Turnover = 2.5Return on Investment (ROI) = Margin* Turnover Return on Investment (ROI) = 13%*2.5Return on Investment (ROI) = 32.5%Calculate the Company's Residual Income Last Year :Minimum Required Return = Minimum Required rate of return *Average Operating AssetsMinimum Required Return = 15% *$1,880,000Minimum Required Return = $282,000Net Operating Income = $611,000Residual Income = Net Operating Income - Minimum Required ReturnResidual Income = $611,000-$282,000Residual Income = $329,000