Return on Investment (ROI) & Residual Income P 10 - A The following reflects operating data from three independent companies. A Company B Sales $ 8,000,000 $ 24,000,000 $ 16,000,000 Operating assets: beg 4,500,000 end 5,500,000 14,000,000 10,000,000 7,800,000 8,200,000 Net operating income Minimum required rate of return 400,000 720,000 7% 10% 800,000 6% Required: 1) Calculate the following for each company: margin, turnover and return on investment. 2) Calculate the residual income for each company. 3) Each company has the opportunity to invest in a project that will yield 7.5%. a) If performance is measured by ROI, which of the companies will accept/reject the opportunity? (One word answer for each.) b) If performance is measured by residual income, which of the companies will accept/reject the opportunity? (One word answer for each.) Return on Investment (ROI) & Residual Income P 10 - B Squash Company Balance Sheets This Year December 31, January 1, Assets Cash $ Accounts receivable Plant and equipment, net 240,000 480,000 10,080,000 $ 180,000 460,000 8,560,000 Investment in stock of Zucchini Company 200,000 160,000 Undeveloped land 800,000 Total assets $ 11,800,000 S 800,000 10,160,000 Liabilities and stockholders' equity All liabilities $ Stockholders' equity 240,000 $ 11,560,000 220,000 9,940,000 Total liabilities and stockholders' equity $ 11,800,000 $ 10,160,000 Squash Company Income Statement For the year ended December 31, This Year Sales Less operating expenses Net operating income Less: interest expense income taxes Net income $ 16,000,000 14,000,000 $ 2,000,000 $ 20,000 480,000 500,000 $ 1,500,000 Required: 1) Calculate Squash Company's margin, turnover and return on investment for This Year (round to one-tenth of percent, if necessary). 2) Calculate the residual income for Squash Company, assuming their minimum required rate of return is 15%