Question

matthews produce harvests and sells florida oranges. matthews has hired you to determine its return on investment (roi) based on both net book value (nbv) and gross book value (gbv). financial data for the company show that profits are $2 million, the nbv of operating assets is $10 million, and the gbv of these assets is $40 million. what is roi based on nbv and based on gbv?

Answer 1

The ROI for Matthews Produce is 20% when calculated based on net book value (NBV) and 5% when calculated based on gross book value (GBV). ROI is a percentage obtained by dividing net income by the value of assets and multiplying by 100.

Step-by-step explanation:

To calculate the return on investment (ROI) for Matthews Produce based on both net book value (NBV) and gross book value (GBV), we will use the financial data provided. ROI is a measure of the profitability of an investment relative to its cost. It is calculated by dividing the net income by the cost of the investment and then multiplying by 100 to express it as a percentage.

ROI based on NBV would be calculated as:

ROI (NBV) = (Net Income / NBV of Operating Assets) × 100
ROI (NBV) = ($2,000,000 / $10,000,000) × 100 = 20%

ROI based on GBV would be calculated as:

ROI (GBV) = (Net Income / GBV of Operating Assets) × 100
ROI (GBV) = ($2,000,000 / $40,000,000) × 100 = 5%

Therefore, the ROI for Matthews Produce is 20% based on NBV and 5% based on GBV.