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The following information relates to last year's operations at the Legumes Division of Gervani Corporation:
Minimum required rate of return 12 %
Return on investment (ROI) 15 %
Sales $ 900,000
Turnover (on operating assets) 3 times
What was the Legume Division's net operating income last year? Multiple Choice
a. $108,000
b. $135,000
c. $36,000
d. $45,000

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Answer:

The Legume Division's net operating income last year was d. $45,000

Explanation:

Turnover (on operating assets) = Total Sales/ Operating assets

From the formula,

Operating assets = Total Sales/Turnover (on operating assets) = $900,000/3 = $300,000

Return on investment (ROI) is calculated by using following formula:

ROI = Net income/Total investment

Net Income = ROI x Total investment

At the Legumes Division of Gervani Corporation, Total investment  = Operating assets = $300,000

Net Income = 15% x $300,000 = $45,000

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