Last year,a company had stockholder's equity of $160,000,net operating income of $16,000 and sales of $100,000.The turnover was 0.5.The return on investment (ROI)was?

Question

Quizplus · Accepted Answer

We can use the ROI formula to calculate the return on investment:

ROI = Net Operating Income / Average Stockholder's Equity

To calculate the average stockholder's equity, we need to know the beginning and ending stockholder's equity. Since that information is not given, we'll assume that the beginning and ending stockholder's equity are equal, giving us:

Average Stockholder's Equity = $160,000 / 2 = $80,000

Plugging in the given values, we get:

ROI = $16,000 / $80,000 = 0.2 or 20%

However, we also know that turnover is 0.5. We can use the turnover formula to calculate the average operating assets (AOA):

Turnover = Sales / AOA

0.5 = $100,000 / AOA

AOA = $100,000 / 0.5 = $200,000

Now we can use the ROI formula using AOA instead of stockholder's equity:

ROI = Net Operating Income / AOA

ROI = $16,000 / $200,000

ROI = 0.08 or 8%

Therefore, the correct answer is B) 8%.

Last Year,a Company Had Stockholder's Equity of $160,000,net Operating Income