Question

The Jazz Division of Heights Recording Corporation reported the following results last​ year: Sales ​$10,000,000 Operating Income ​$2,200,000 Total Assets ​$4,000,000 Current Liabilities ​$2,500,000 ​Management's target rate of return is​ 12% and the weighted average cost of capital is​ 9%. Its effective tax rate is​ 32%. Calculate the ROI for the Jazz Division. A. ​22% B. ​88% C. ​12% D. ​55% Did the Jazz Division earn or exceed the target rate of​ return? A. Yes B. No

Answer 1

The ROI for the Jazz Division IS 55%. The right answer is D.

A. Yes

Step-by-step explanation:

In order to calculate the ROI for the Jazz Division we would have to use the following formula

ROI = Operating income/Total assets

According to the given data:

Operating income=$2,200,000

Total assets = ​$4,000,000

Therefore, ROI = $2,200,000/$4,000,000

ROI =55%

The ROI for the Jazz Division is 55%

A. Yes. The Jazz Division earn the target rate of​ return