MerchCo, a retailer, provides you with the following information.
.....................................Year 2011............... Year 2012
Sales............................... $2,400,000............. $2,700,000
Cost of goods sold................ 1,800,000............... 2,010,000
Gross margin......................... 600,000................. 690,000
Selling expenses..................... 480,000................. 510,000
Profit before tax...................... 120,000................ 180,000
Average assets.................... $2,100,000............. $2,225,000
The firm requires a 10% rate of return from its divisions.
Required:
Suppose sales for 2013 are expected to be $3,000,000, and average assets are projected to be $2,275,000. Using the data from 2011 and 2012, calculate the firm's expected return on investment and residual income for 2013.