Overline Merge Cel 2. Insert R Delete Column 2. DeleteRow Conditional Formatting Here Conditional Formats CLICK HERE TO SAVE YOUR WORK be 024 N O 4 A 1 1 G Xtre Me! Fitness Inc. is a health club. The following results were recorded for last year: 1 K M 2 2 3 Sales $2,000,000 Operating Income $150,000 5 Asset Turnover 2.5 6 7 Required: 8 8 a) Calculate the company's Rol for the past year using margin and turnover. [2 marks) 10 Margin 7.50% 11 Turnover 12 Return on investment 13 14 b) Assume the minimum required rate of return on average operating assets is 12%. Calculate the club's Residual Income. [3 marks) 15 16 12 18 Residual income 15 20 c) The owner is reviewing growth plans for the business. It is estimated that opening a second health club would increase Total Sales from $2,000,000 to $3,000,000 and Total Operating Income from $150,000 to $195,000, but also increase average operating assets by $350,000. Calculate the revised ROI for the total company assuming a 2nd health club is opened. If the expansion decision is based on ROI, will the second club be opened? Explain why. (6 marks) 21 23 25 26 Decision Yes 27 28 Reason 29 30 d) Calculate the Residual income for the 2nd health club assuming Operating income = $45,000 and Average operating assets required 31 = $350,000 for the 2nd club. If the decision is based on residual income, will the second location be apened? (3 marks) 32 23 14 Residual income MIROIRI V5 New 1