Question

Barrington Corporation reports the following information.

2017 2016
Cash $15,960 $14,490
Net operating working capital $6,150 $3,300
Net long-term operating assets $9,360 $9,300
Net nonoperating obligations $2,700 $2,100
Net operating profit after tax $1,950 $1,620
Weighted average cost of capital 7.0% 7.0%
a. What is the company's residual operating income (ROPI) for 2017?
Select one:
A. $ 864
B. $1,068
C. $1,215
D. $ 988
E. None of the above

Answer 1

Option (B) is correct.

Step-by-step explanation:

Net operating assets (Beginning):

= Net operating working capital + Net long-term operating assets

= $3,300 + $9,300

= $12,600

Company's residual operating income (ROPI) for 2017:

= Net operating profit after tax - [Net operating assets (Beginning) × Weighted average cost of capital]

= $1,950 - [$12,600 × 7.0%]

= $1,950 - $882

= $1,068