A, FDT Productions’ South Division reported sales of $280,000 and net income totaling $58,800. The invested capital in South Division is $336,000. Calculate South Division’s profit margin, investment turnover, and return on investment.
1) profit margin
2) investment turnover
3) return on investment
B, For fiscal year 2020, Royal Division of Emerson LTD had income as follows:
Sales revenue $43,000,000
Expenses:
Cost of goods sold $28,400,000
Selling and administrative expense 5,600,000
Interest expense 1,100,000 35,100,000
Income before taxes 7,900,000
Income tax expense 2,765,000
Net income $ 5,135,000
The Royal Division’s total assets were $89,000,000 and its current liabilities totaled $3,200,000 with $700,000 of these being interest-bearing. The company has a required rate of return of 9 percent and a cost of capital of 7.2 percent. Calculate NOPAT, invested capital, and return on investment for Regency Division and comment on the company’s performance.
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From the documents provided, the income tax rate needs to be calculated before determining the company’s NOPAT.
NOPAT is then calculated using the formula below.
The company’s total invested capital is
Return on investment is the NOPAT divided by the invested capital
A 6.76% return on investment shows that the division is performing poorly because it is below the required minimum, which is 9% of the invested assets.
