Question

The Box Manufacturing Division of the Allied Paper Company reported the following results from the past year. Shareholders require a return of 8%. Management calculated a weighted-average cost of capital (WACC) of 5%. Allied's corporate tax rate is 30%. Sales $800,000​ Operating income 120,000​ Total assets $1,600,000​ Current liabilities 200,000​ What is the division's Return on Investment (ROI)?

Answer 1

Answer:

7.50%

Explanation:

Data provided as per the question below:-

Operating income = $120,000

Total assets = $1,600,000

The computation of Return on Investment is shown below:-

Return on Investment = Operating income ÷ Total assets

= $120,000​ ÷ $1,600,000

= 7.50%

Therefore for computing the return on investment we simply applied the above formula.