Question

Estes Company had average operating assets of $4,000,000 and sales of $1,000,000 in 2002. If the controllable margin was $400,000, the ROI was

a.10%.
b.15%.
c.25%.
d.40%.

Answer 1

To determine the ROI for Estes Company, the controllable margin of $400,000 is divided by the average operating assets of $4,000,000 and multiplied by 100, yielding an ROI of 10%.

Step-by-step explanation:

The student's question pertains to the calculation of Return on Investment (ROI) for the Estes Company. ROI is a measure of the profitability of an investment, calculated by dividing the controllable margin (net income generated from the investment) by the average operating assets and then multiplying by 100 to get a percentage. In this case, the controllable margin is given as $400,000 and the average operating assets are $4,000,000.

To calculate the ROI, we use the formula:

ROI = (Controllable Margin / Average Operating Assets) x 100

Substituting the given values:

ROI = ($400,000 / $4,000,000) x 100 = 10%

Therefore, the correct answer to the student's question is option a. 10%.