Question

Chace products is a division of a major corp Last year the division had total sales of 21,300,000, NOI of575,100, and avg operating assets of _______. The divisions return on investment is closest to:

1) 49
2) 11.5
3) 0.3
4) 2.2

Answer 1

To determine which Return on Investment (ROI) option is correct, calculate the Average Operating Assets using the given Net Operating Income (NOI) and divide this by the ROI (converted to decimal). Perform this calculation for all given ROI options to find which yields the correct average operating assets.

Step-by-step explanation:

The student's question relates to the concept of Return on Investment (ROI), which is a measure of the profitability of a division or business unit relative to its operating assets. To calculate ROI, we divide the Net Operating Income (NOI) by the average operating assets. The formula is:

ROI = (Net Operating Income) / (Average Operating Assets)

In this case, we need to solve for the Average Operating Assets since the NOI and the ROI are given. The provided ROI options can be used to calculate back to the average operating assets required to achieve the given NOI. We rearrange the formula to solve for Average Operating Assets:

Average Operating Assets = NOI / ROI

We then convert the ROI percentage to a decimal and perform the calculation for each provided ROI option until we find the one that makes the equation true:

Average Operating Assets = \$575,100 / ROI (as a decimal)

For example, if we think the answer is Option 2 (11.5%), we would use 0.115 (11.5 % as a decimal) in our calculation:

Average Operating Assets = $575,100 / 0.115 = $5,000,000

This result would tell us that, to have a ROI of 11.5%, the division's average operating assets would need to be \$5,000,000. The student would have to perform similar calculations for all options to find the correct ROI.