Stellar Systems Company manufactures guidance systems for rockets used to launch commercial satellites.

The company’s Software Division reported the following results for 20x7.

Income ............................................................................................................................................................ $ 300,000 Sales revenue ................................................................................................................................................. 2,000,000 Invested capital (total assets) ........................................................................................................................ 3,000,000 Average balance in current liabilities ............................................................................................................ 20,000 Stellar Systems’ weighted-average cost of capital (WACC) is 9 percent, and the company’s tax rate is 40 percent. Moreover, the company’s required rate of return on invested capital is 9 percent.

Required:
1. Compute the Software Division’s sales margin, capital turnover, return on investment (ROI), residual income, and economic value added (EVA) for 20x7.
2. If income and sales remain the same in 20x8, but the division’s capital turnover improves to 80 percent, compute the following for 20x8:

(a) invested capital and

(b) ROI.