Question
Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the
Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets:
| Net Income | Assets | ||
|---|---|---|---|
| Las Vegas | $960,000 | $4,000,000 | |
| Dallas | 1,200,000 | 9,600,000 | |
| Tampa | 2,280,000 | 12,000,000 |
a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI.
Round ROI to the nearest whole percentage.
| ROI | Rank | |
|---|---|---|
| Las Vegas | ? | 1 |
| Dallas | ? | 3 |
| Tampa | ? | 2 |
b. Calculate residual income for each profit center based on a desired ROI of 12% and rank them from highest to lowest based on residual income.
| ROI | Rank | |
|---|---|---|
| Las Vegas | ? | 2 |
| Dallas | ? | 3 |
| Tampa | ? | 1 |
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Financial Management for Public Health and Not for Profit Organizations
Authors: Steven A. Finkler, Thad Calabrese
4th edition
978-0132805667
