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 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Theory Conceptual Issues In A Political And Economic Environment
Authors: Harry I. Wolk, James L. Dodd, John J. Rozycki
7th Edition
1412953456, 978-1412953450
