Asked by Raman Hundal on Jul 14, 2024
Verified
Nasser Inc.reported the following results from last year's operations: 
Last year's return on investment (ROI) was closest to:
A) 9.0%
B) 47.6%
C) 18.9%
D) 80.7%
Return On Investment
A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing net profit by the cost of the investment.
- Undertake the calculation and explanation of crucial financial ratios and performance measures, including margin, turnover, and residual income.
Verified Answer
MA
Meron AbrhamJul 16, 2024
Final Answer :
C
Explanation :
To calculate ROI, we need to divide the net income (operating income - taxes) by the average invested capital. The average invested capital is calculated by adding the beginning and ending invested capital and dividing by two.
ROI = (Operating Income - Taxes) / Average Invested Capital
Using the numbers given in the table:
Average Invested Capital = (200,000 + 100,000) / 2 = 150,000
Net Income = Operating Income - Taxes = 28,000 - 6,000 = 22,000
ROI = 22,000 / 150,000 = 0.147 = 14.7%
The closest answer choice to 14.7% is C) 18.9%.
ROI = (Operating Income - Taxes) / Average Invested Capital
Using the numbers given in the table:
Average Invested Capital = (200,000 + 100,000) / 2 = 150,000
Net Income = Operating Income - Taxes = 28,000 - 6,000 = 22,000
ROI = 22,000 / 150,000 = 0.147 = 14.7%
The closest answer choice to 14.7% is C) 18.9%.
Explanation :
ROI = Net operating income ÷ Average operating assets = $1,134,000 ÷ $6,000,000 = 18.9%
Learning Objectives
- Undertake the calculation and explanation of crucial financial ratios and performance measures, including margin, turnover, and residual income.