Question 4

The income statement for Forklift Electrical Ltd for two years are shown below

Required:

a) Determine the operating income (loss) (dollars) for each year. (1 mark)

b) The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the amounts of the total assets as the investment base, calculate the return on investment. (1 mark)

c) Was the decision to invest additional assets in the company successful? Explain. (1 mark)

d) Assuming an 8% cost of capital, calculate the residual income for each year. (2 marks)

e) Would the management of Forklift Electrical Ltd have been more likely to accept the investment opportunity if the residual income had been used as a performance measure instead of ROI? Explain your answer. (2 marks)

SHOW YOUR WORKING. Put some Harward referencing if you can. would be a great help!!

Please provide me with 100% correct answers. I want to score good marks on my exam paper.

Forklift Electrical Ltd Income Statement Comparison Current year Prior Year (amounts in thousands) Sales $ 33,750 $ 24,750 Cost of goods sold 21,938 16,830 Gross profit $ 11,812 $ 7,920 Wages $ 8,775 $ 6,188 Utilities 675 250 Repairs 169 325 Selling 506 200 Total expenses $ 10,125 $ 6,963 Total assets (investment base) $ 4,500 $ 1,500