Return on Investment and Residual Income Johnson Company has

Return on Investment and Residual Income Johnson Company has two sources of funds: long, term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets: Net Income Assets Las Vegas $1,160,000 $4,000,000 1,400,000 8,000,000 2,240,000 12,000,000 Dalas a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI Round ROI to the nearest whole percentage Las Vegas Dallas b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income. ROI Las Vegas s Dallas Tampa ? 5 6 7 8 9 0

Solution

Answer

a ) calculated the return on investment ( ROI)for each profit center

ROI = net income / total assets

  

b ) calculated computation of residual income

particulars	ROI	rank
las vegas(1160000/4000000)	29%	1
dallas(1400000/8000000)	17%	3
tampa(2240000/12000000)	19 %	2