Question

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired rate of return of 15%.
A. What is the profit margin for Mason. B. What is the investment turnover for Mason. C. What is the residual income for Mason?

Answer 1

Answer:

a) 14.1%

b)1.08

c)$1500

Explanation:

Given invested assets = $650,000

Sales = $700,000

operation's income = $99,000

a)Profit margin = net income/revenue × 100%

Net income = operations income = $99000

Total revenue = sales = $700000

Profit margin = $99000/$700000×100%

Profit margin = 14.1%

b) investment turnover is the ratio of the net sales to the sum of equity and debt.

Net sales = $700000

Debt = $650,000 = invested assets

Investment turnover = Net sales/debt

Investment turnover = 700000/650000

Investment turnover = 1.08

c) residual income is the income generated after all debts and expenses has been paid.

Residual income = income from operations - returns of investment

Income from operations =$99000

Return on investment = 15% of $650000 = $97500

Residual income = $99000-$97500

Residual income =$1500

Answer 2

Answer:

Profit margin is 14.1%

investment turnover is 1.08 times

residual income is $1,500

Explanation:

The profit margin=income from operations/sales

income from operations=$99000

sales=$700,000

the profit margin=$99,000/$700000

the profit margin=14.1%

investment turnover=sales/invested assets

sales as shown above

invested assets =$650,000

investment turnover=$700,000/$650,000

investment turnover=1.08 times

Residual income =income from operations less desired returns on investment

income from operations is $99000

desired investment return is 15%*$650,000=$97,500

residual income=$99,000-$97,500

residual income=$1500