Reference no: EM133077785
Question - Dragon LTD is a private company whose management accountant is analyzing the performance of its centre using Return on Investment and Residual income methods. So it is trying to look at different components that are distributing to its success. The tests he wants to carry out are based on the following information prevented on the table below:
$
Current liabilities [3 5 % of short - term debt] 24,500
Notes payable 65,600
Core current assets 74,000
Long - term assets 125,000
Accumulated Depreciation 18,000
Land for speculation 25,000
Other non - operating assets 14,000
Tax rate 30%
Prepaid expense $7,600
Beginning Inventory $2,000
Cost of goods manufactured $33,000
Ending Inventory $3,000
Sales $76200
Risk free rate 3%
Index in January 2021 15,200
Index in December 2021 16,500
Beta 1.8
Operating Expenses 19780
Accrued expense 15,000
Interest on debt 6%
Beginning operating assets $185,000
REQUIRED -
1. Calculate interest expense, tax and EBIT
2. Calculate the operating assets of the company
3. Calculate ROI using the first method.
4. What are the margin and the turnover of the company?
5. Using Du Pont analysis, calculate the ROI of the company
6. What are the disadvantages of using Return on Investment?
7. Calculate the cost of equity.
8. What is the residual income of this investment centre?
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