Question 1

Jackson is a private company whose management accountant team is evaluating the performance of its investment centre. The company manufactures phones. So it is using different measures recommended to look at its success or failure. The tests he wants to carry out are the following using the table below:

December 2020 financial information

Current liabilities ( non interest bearing)

$ 56,700

Bond payable

$ 105,600

Equity

$ 250,000

Cash

$ 55,000

A/C Receivable

$ 43,000

Inventory

$ 27,900

Non Operating Asset

$ 128,900

Accumulated Depreciation

$ 7,500

Operating Expenses

$

Supplies expense

14500

Utilities Expense

8,750

Depreciation Expense

7200

Rent expense

9,200

Training expenses

6700

Revenue

106,200

Unearned Revenue

24,000

COGS

31,000

Interest on debt

8.5%

Risk free Rate

4.5%

Cost of debt

7.3%

Market return

9.4%

Market Risk

1.2

OA in Jan 2020

$210,000

Tax Rate

17%

Note : Company uses gross PPE [including accumulated Depreciation]

REQUIRED

1. Calculate interest expense, net income, tax and EBIT [operating

income]

2. Calculate the gross PPE [Plant, Property & Equipment]

3. Calculate cost of equity [re].

4. What is the average operating asset

5. What is the ROI [return on investment] of the company?

6. Use two component method to calculate ROI and indicate which

component contributed most [Profitability or efficiency]

7. Calculate Residual Income [RI ]

8. What is the main difference in calculating ROI and RI?

9. What is the main disadvantages of both ROI and RI