Question

Heller Enterprises reports the following information. 2017 2016 Cash $10,800 $10,600 Operating assets $18,500 $18,800 Operating liabilities $14,100 $14,800 Net operating profit after tax $10,200 $10,300 Weighted average cost of capital 6.0% 6.0% What is the company's residual operating income (ROPI) for 2017? A. $9,072 B. $6,200 C. $9,312 D. $9,960 E. None of the above

Answer 1

The company's residual operating income (ROPI) for 2017 is $9,960. The right answer is D.

Step-by-step explanation:

In order to calculate the company's residual operating income (ROPI) for 2017 we would have to use the following formula:

Company's Residual operating Income = NOPAT - [ WACC x NOA at beginning ]

Where, NOPAT = Net operating profit after tax for 2017 = $10,200, WACC = weighted average cost of capital = 6%

NOA at beginning = Net operating assets at beginning of the year (NOA of 2016 closing) = $18,800 - $14,800 = $4000

Therefore, Company's residual operating income = $10,200 - [ 6% x $4000 ] = $9,960