Question

The following information relates to last year's operations at the Legumes Division of Gervani Corporation: Minimum required rate of return 12 % Return on investment (ROI) 12.8 % Sales $ 640,000 Turnover (on operating assets) 4 times What was the Legume Division's net operating income last year

Answer 1

The divisional net operating income is $20,480

Step-by-step explanation:

In order to calculate the net income from the return on investment formula which is net income divided by average operating assets,the value of operating assets needs to be determined using asset turnover ratio.

Asset turnover =sales/average operating assets

asset turnover is 4 times

sales is $640,000

average operating assets is unknown

4=$640,000/average operating assets

average operating assets=$640,000/4

average operating assets=$160,000

Hence we can now determine net income from ROI formula:

return on investment=net income/average operating assets

return on investment is 12.8%

net income is unknown

average operating assets is $160,000

12.8%=net income/160,000

net income=160000*12.8%=$20,480