Reference no: EM132690062

Financial data for Porcine Sun for the prior year is as follows:

Sales 16,000,000

Operating expenses 13,400,000

Operating income 2,600,000

Average operating assets 8,000,000

Required:

Problem 1. Compute the company's margin, turnover, and return on investment for last year.

Problem 2. The Board of Directors of Porcine Sun have set a minimum required return of 25%. What was the company's residual income last year?

Problem 3. An investment opportunity is available to Porcine Sun that would require an investment of $100,000 in new operating assets and earn earnings before interest and taxes of $30,000.

i. Would the management of Porcine Sun likely accept the investment opportunity if evaluated based on return on investment? Explain and show calculations.

ii. Would the management of Porcine Sun likely accept the investment opportunity if evaluated based on residual income? Show calculation and explain.