Question

The following information pertains to the three divisions of Merrymount Company: Division X Division Y Division Z Sales ? ? 1,250,000 Net operating income $ 36,000 $25,000 $ 75,000 Average operating assets 300,000 ? ? Return on investment ? 20% 15% Margin 0.10 0.05 ? Turnover 1.5 ? ? Target ROI 15% 12% 10% What are the average operating assets for Division Y?

Answer 1

The average operating assets for Division Y = $125,000

Step-by-step explanation:

Divisions Y

Sales ?

Net Operating Income 25,000

Average operating assets ?

Return on Investment 20%

Margin 0.05

Turnover ?

Target ROI 12%

Since we need average operating assets for division Y, we include those.

We know,

Return on Investment = Net Operating Income/ Average operating assets.

Return on investment is the ratio that is used to measure the company's profitability by using the efficient use of operating assets.

Therefore,

20% = $25,000/Average operating assets

Average operating assets x 20% = $25,000

Average operating assets = $25,000/20%

Average operating assets = $25,000/0.20

Average operating assets = $125,000