The income statement for the Commercial Construction Division of the Kenyon Company is as follows: $$\begin{array} { l r }
\text { Sales } & \$ 272,000 \
\text { Operating expenses } & 132,000 \
\text { Net operating income } & 140,000 \
\text { Interest expense } & 20,000 \
\text { Earnings before taxes } & 120,000 \
\text { Income tax expense } ( 30 \% ) & \$ 36,000 \
\text { Net income } & \underline { \$ 84,000 }
\end{array}$$ If this division's invested capital is $500,000, how much is its return on investment?

Question

The income statement for the Commercial Construction Division of the Kenyon Company is as follows: $$\begin{array} { l r } 
\text { Sales } & \$ 272,000 \
\text { Operating expenses } & 132,000 \
\text { Net operating income } & 140,000 \
\text { Interest expense } & 20,000 \
\text { Earnings before taxes } & 120,000 \
\text { Income tax expense } ( 30 \% ) & \$ 36,000 \
\text { Net income } & \underline { \$ 84,000 }
\end{array}$$ If this division's invested capital is $500,000, how much is its return on investment?

Quizplus · Accepted Answer

The return on investment is calculated by dividing the net income by the invested capital. In this case, the net income is $84,000 and the invested capital is $500,000, so the return on investment is $84,000 / $500,000 = 16.8%.

The Income Statement for the Commercial Construction Division of the Kenyon