Assume the Hiking Shoes division of the All About Shoes Corp

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Management\'s target rate of return is 10% and the weighted average cost of capital is 30%. Its effective tax rate is 30%. Sales $ 8,000,000 Operating income 800,000 Total assets 2,000,000 Current liabilities 750,000 What is the division\'s Return on Investment (ROI)? A. 10.00% B. 40.00% C. 37.50% D. 400.00%

Solution

Answer)

My answer is (B).

Return on investment :operating income/Total assets×100

=$800000/$2000000×100=40%