Question

Family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below:

Company
A B C
Sales $450,000 $660,000 $550,000
Net operating income $37,000
Average operating assets $161,000 $149,000
Return on investment ROI 25% 16%
Minimum required rate of return
Percentage 14% % 10%
Dollar amount $53,000
Residual income $7,000

Answer 1

The calculation involves finding the missing data related to company operations based on ROI and residual income, using standard financial formulas and given company data.

Step-by-step explanation:

The subject in question involves analyzing the operations of three anonymous companies within the same service sector industry, specifically addressing return on investment (ROI) and residual income. To calculate the missing figures, we can use the formulas: ROI = Net Operating Income / Average Operating Assets and Residual Income = Net Operating Income - (Average Operating Assets * Minimum Required Rate of Return).

For Company B, to find the minimum required rate of return, we divide the residual income ($7,000) by the net operating income and subtract this result from 1. Additionally, for Company C, to find the net operating income that satisfies the ROI, we multiply the average operating assets by the ROI percentage. Furthermore, Company C's residual income is calculated by subtracting the product of its average operating assets and the minimum required rate of return from its net operating income.