Question

Brief Exercise 19-14 (Static) Matthews Produce harvests and sells... [LO 19-1]

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

For Matthews Produce, the Return on Investment (ROI) are as follows:

Based on NBV = 20%

Bbased on GBV = 5%.

How the return on investment is computed:

The return on investment refers to the ratio between the net income in a financial year and the investment costs.

Generally, the return on investment measures the efficiency of an investment over a period.

Profits = $2 million

Net Book Valuehttps (NBV) of operating assets = $10 million

Gross Book Value (GBV) of operating assets = $40 million

The Return on Investment (ROI) based on NBV = 20% ($2/$10 x 100)

The Return on Investment (ROI) based on GBV = 5% ($2/$40 x 100)