eyPLUS Financial seM ACC Paula Boothe Solution D109 Return o

eyPLUS Financial seM (ACC Paula Boothe

Solution

D10-9 Return on investment=Operating income/Investment=(247000/1800000)*100=13.72% Martin Koch will not chose to invest in new line since the return on investment on new line is less than current return of 14%. Paula booth would prefer this investment since return on investment is more than the minimum corporate return of 12%. D10-13 Return on investment=Operating income/Investment Here,investment=Operating assets=$ 3027000 18.36%=Operating income/3027000 Operating income=3027000*18.36%=$ 555757 Margin=Net operating income/Sales 12%=555757/Sales Sales=555757/12%=$ 4631308 Sales revenue= $4631308 Net operating income=$ 555757 D10-14 Residual income=Actual return-Required return Required return=Investment*Minimum rate of return=1812000*9%=$ 163080 Residual income=234500-163080=$ 71420 Martin Koch will chose to invest in new line since the residual value on new line is positive. D10-18 Economic value added=[Net operating income*(1-Tax)]-[(WACC*Invested capital)]=[246000*(1-0.32)]-(1817000*10%)=-14420 (Where WACC=Weighted average cost of capital) Martin Koch will not chose to invest in new line since the economic value added on new line is negative.