Question

"Columbia Corp.'s required ROI is 10%. Its East Division has operating assets of $7,500,000, profit margin of 15%, and asset turnover of 0.80. Calculate the East Division's operating income."

Answer 1

East Division operating income = $900,000

Explanation:

Profit margin = Net operating income/Sales

Asset turnover = sales/average operating assets

0.80= x/7,500,000

x = 7500000*0.80

= 6000000

Thus, sales = 6,000,000

Profit margin = net operating income/Sales

15% = x /6,000,000

x= 6,000,000*15%

=900,000

Net operating income = 900,000