| Orion Ltd. Balance Sheet as at October 31, 2021 ASSETS CURRENT 2021 Cash 10,250 Accounts receivable 83,300 Inventory 115,600 Interest receivable 2,375 211,525 CAPITAL Land 247,500 Buildings 280,000 Accumulated depreciation, buildings (100,800) Equipment 164,400 Accumulated depreciation, equipment 93,000) 498,100 INTANGIBLE Trademarks, net 13.200 722.825 2020 43,100 92,700 108,400 1.125 245,325 2019 17,025 63,400 81,700 900 163,025 187,500 280,000 __89,600) 130,400 ( 78,900) 429.400 187,500 260,000 (79,100) 122,500 ( 68,900) 422,000 15,400. 690.125 17.300 602.325 LIABILITIES CURRENT Accounts payable Salaries payable Interest payable Income taxes payable LONG TERM Mortgage payable Bonds payable 87,200 2,500 4,100 3,500 97.300 64,100 2,000 3,900 5,700 75,700 53,200 1,800 2,100 1,000 58.100 170,000 180,000 50,000 230,000 120,000 30,000 150,000 170,000 SHAREHOLDERS' EQUITY SHARE CAPITAL Common stock RETAINED EARNINGS 200,000 255 525 455,525 722.825 200,000 184.425 384,425 690.125 200,000 194,225 394 225 602325 5 Orion Ltd. Income Statement for the year ended October 31, 2021 2021 2020 Sales revenue 854,200 622,500 Cost of goods sold 512.700 364,100 Gross profit 341,500 258,400 Operating expenses Amortization 2,200 1,900 Depreciation 25,300 20,500 Salaries and benefits 132,600 121,200 Office and administrative 82.500 77,000 242,600 220,600 Operating income 98,900 37,800 Other items Interest revenue 9,500 7,000 Interest expense 11,000) ( 14,000) Loss on retirement of bonds 3.300) 4.800 7.000) Income before tax 94,100 30,800 Income tax expense 18,200 6.200 Net income 75,900 24,600 Retained earnings, start of year 184,425 1.94 225 255,425 218 825 Less: Dividends declared 4.800 34.400 Retained earnings, end of year 255.525 184 425 Required: a) Using the Dupont method, calculate the ROI for Orion for 2021 and 2020. Explain what each of the two components of the DuPont method tell the company about its performance in 2021 compared to its performance in 2020. b) What could Orion compare its 2021 ROI to, instead of its previous year's ROI? Describe one reason the prior year is preferable to the alternative. CL Compute the residual income for each of 2021 and 2020 if Orion's weighted average cost of capital is 10% each year. d) Orion has an investment opportunity for 2022 that is expected to generate additional annual operating income of $140,000, with an additional investment in operating assets of $1,000,000. The 2021 operations are expected to generate the same revenues and operating expenses in future years. Calculate projected 2022 ROI (not DuPont method) using the full cost of the new investment. Explain whether or not the company should make the investment, and whether management is likely to go ahead with the investment if ROI is used to measure performance. Why is this outcome likely? 6 5 2 3 5
