Bellingham Division has a required rate of return by corporate headquarters of 20%. The weighted average cost of capital is 12%. You are given the following information for Bellingham's operations for a two-year period: 2005 2004
Current assets $ 50,000 $ 60,000
Long-term assets 200,000 204,000
Accumulated amortization 60,000 44,000
Current liabilities 40,000 20,000
Long-term debt 100,000 140,000
Operating income for the year 19,000 21,000
Tax rate 40% 40%
The ROI for 2005 was:
A)9)3%
B)10.0%
C)3)7%
D)20.0%

Question

Quizplus · Accepted Answer

The ROI for 2005 is calculated as follows:ROI = (Operating income - Taxes) / (Total assets - Current liabilities)= (19,000 - 0.4 * 19,000) / (200,000 + 50,000 - 40,000)= 11,400 / 210,000= 0.0933 or 9.33%

Bellingham Division Has a Required Rate of Return by Corporate