Premo Pens is a division of InCommunicato, Inc. Premo generates annual revenue of $162,000, operating earnings of $55,000, and has average assets of $400,000. InCommunicato expects its divisions to earn a minimum required return of 12 percent. Which of the following does not represent either return on sales, residual income, or return on investment for Premo Pens?

Question

Quizplus · Accepted Answer

40.5% does not represent any of the financial metrics. Return on sales is 34% ($55,000/$162,000), residual income is $7,000 ($55,000 - 12% of $400,000), and return on investment is 13.75% ($55,000/$400,000).

Premo Pens Is a Division of InCommunicato, Inc