Exercise 2: Given the following data:

Return on investment ................................. 25%

Sales ........................................................... $100,000

Average operating assets ........................... $40,000

Turnover .................................................... 2.5

Minimum required rate of return ............... 18%

Margin on sales ......................................... 10%

Required: Calculate the Residual Income.

Exercise 3: The following information relates to last year's operations at the Paper Division of

Germane Corporation:

Minimum required rate of return ............... 15%

Return on investment (ROI) ...................... 18%

Sales ........................................................... $810,000

Turnover (on operating assets) .................. 5 times

What was the Paper Division's net operating income last year?