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How do I find the residual income here? I'm missing only the residual income and nothing else to be done besides that. Genmure Corporation is
How do I find the residual income here? I'm missing only the residual income and nothing else to be done besides that.
Genmure Corporation is trying to analyze the results of three efficiency initiatives that were taken on the previous fiscal period. Below is data relating to these projects: | |||||||
Factory Automation | |||||||
Sales | $400,000 | ||||||
Operating Expenses | 225,000 | ||||||
Income Tax Expense | 30,000 | ||||||
Average Assets Invested | 1,100,000 | ||||||
Re-Certify Labor Force | |||||||
Sales | $290,000 | ||||||
Operating Expenses | 265,000 | ||||||
Income Tax Expense | 4,000 | ||||||
Average Assets Invested | 125,000 | ||||||
Update Tools and Equipment | |||||||
Sales | $142,000 | ||||||
Operating Expenses | 48,000 | ||||||
Income Tax Expense | 18,000 | ||||||
Average Assets Invested | 500,000 | ||||||
Hurdle Rate: | 12% | ||||||
Required: | |||||||
Determine the Margin, Turnover, Return on Investment, and Residual Income for each initiative. | |||||||
Factory Automation | |||||||
Margin | 43.8% | ||||||
Turnover | 0.36 | ||||||
Return on Investment (ROI) | 15.9% | ||||||
Residual Income (RI) | $43,000 | ||||||
Re-Certify Labor Force | |||||||
Margin | 8.6% | ||||||
Turnover | 2.32 | ||||||
Return on Investment (ROI) | 20.0% | ||||||
Residual Income (RI) | $10,000 | ||||||
Update Tools and Equipment | |||||||
Margin | 66.2% | ||||||
Turnover | 0.28 | ||||||
Return on Investment (ROI) | 18.8% | ||||||
Residual Income (RI) | $34,000 | ||||||
Which initiative outperformed the others on the basis of Return on Investment? | Re-Certify Labor Force | ||||||
Which initiative outperformed the others on the basis of Residual Income? | Factory Automation | ||||||
Management is pleased with the results of the last year and is offering additional resources to continue the positive trend with the initiatives. | |||||||
Additional Assets to Invest | $325,000 | ||||||
Increase to Sales | 30% | ||||||
Increase to Operating Expenses | 15% | ||||||
Required: | |||||||
Recalculate the amounts with management's additional funding. Assume Income Tax remains the same. | |||||||
Determine the Margin, Turnover, Return on Investment, and Residual Income for each initiative with management's additional funding. | |||||||
Factory Automation | |||||||
Sales | $520,000 | ||||||
Operating Expenses | 258,750 | ||||||
Income Tax Expense | 30,000 | ||||||
Average Assets Invested | 1,425,000 | ||||||
Re-Certify Labor Force | |||||||
Sales | $377,000 | ||||||
Operating Expenses | 304,750 | ||||||
Income Tax Expense | 4,000 | ||||||
Average Assets Invested | 450,000 | ||||||
Update Tools and Equipment | |||||||
Sales | $184,600 | ||||||
Operating Expenses | 55,200 | ||||||
Income Tax Expense | 18,000 | ||||||
Average Assets Invested | 825,000 | ||||||
Factory Automation | |||||||
Margin | 50.2% | ||||||
Turnover | 0.36 | ||||||
Return on Investment (ROI) | 18.3% | ||||||
Residual Income (RI) | x | ||||||
Re-Certify Labor Force | |||||||
Margin | 19.2% | ||||||
Turnover | 0.84 | ||||||
Return on Investment (ROI) | 16.1% | ||||||
Residual Income (RI) | x | ||||||
Update Tools and Equipment | |||||||
Margin | 70.1% | ||||||
Turnover | 0.22 | ||||||
Return on Investment (ROI) | 15.7% | ||||||
Residual Income (RI) | x | ||||||
If the manager for the labor force's performance uses ROI, would the manager accept the management's funding? | No | ||||||
If the manager for the Tools and Equipment's performance uses Residual Income, would the manager accept the management's funding? | No | ||||||
If the manager for Factory Automation's performance uses Return on Investment, would the manager accept the management's funding? | Yes | ||||||
If the manager for Factory Automation's performance uses Residual Income, would the manager accept the management's funding? | Yes |
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