Figure 19-3
The following results for the year pertain to the Maddox Division of Ryan Ltd.: $\begin{array}{lr}
\text { Sales } & E 640,000 \
\text { Variable expenses } & 160,000 \
\text { Fixed expenses } & 300,000
\end{array}$ The weighted average cost of capital is 12 per cent. The firm's minimum required rate of return is 14 per cent. Taxes for the firm are 40 per cent.
-Refer to Figure 19-3. If average operating assets are £1,000,000, return on investment for the Maddox Division is
A)48%.
B)34%.
C)18%.
D)16%.

Question

Quizplus · Accepted Answer

Return on Investment (ROI) is calculated as Net Operating Income divided by Average Operating Assets. Net Operating Income is Sales minus Variable Expenses minus Fixed Expenses. Here, it's £640,000 - £160,000 - £300,000 = £180,000. With average operating assets of £1,000,000, ROI = £180,000 / £1,000,000 = 0.18 or 18%.

Figure 19-3 the Following Results for the Year Pertain to the Maddox

Figure 19-3
the Following Results for the Year Pertain to the Maddox