User Account

All Pages

Operating income and net book value of assets

Assignment Help Accounting Basics
Reference no: EM13135933

The following data pertain to Hercules Health Club's operations for the most recent year.

Operating Income $125,000
Gross Book Value of Assets $950,000
Net Book Value of Assets $350,000
Liabilities $ 72,000
Corporate Tax Rate 28%
Value of Debt Outstanding $50,000
Cost of Debt 12%
Estimated Cost of Equity 15%

a. Calculate the ROI for Hercules. Use operating income and net book value of assets as the measures for income and investment respectively.

b. Compute the residual income for Hercules, using 14% as the required rate of return.

c. Compute the economic value added (EVA) for Hercules, making sure to separately show the calculation for weighted average cost of capital.

d. What factors might explain the unusually high ROI for Hercules?

e. Suppose Tom and Lynda identify a project that has a 20% ROI. Will they choose to invest in the project? Will your answer differ if, instead of being a family-owned business, Hercules was a branch in a network of gyms? What factors are central to your argument?

Reference no: EM13135933

Questions Cloud

Segment margin for store : Assume that this proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new segment margin for Store Q should be:
The second section : The second section is a brief critique and analysis of policy through the features of healthy public policy. You have a local government policy and briefing paper on the topic of food security (see AT3 Module).
Electoral college reform : Much has been made of possible Electoral College reform with regards to the 2000 election. Is there room for Electoral College reform? Do we actually need Electoral College reform?
What is the molar mass of the substance : If 0.628 moles of a substance weighs 77.3 g, what is the molar mass of the substance, in units of g/mol?
Operating income and net book value of assets : Calculate the ROI for Hercules. Use operating income and net book value of assets as the measures for income and investment respectively.
Determining us constitution : Explain how the Constitution has shaped political participation in the United States over time, including the impact of the Constitution on activity by policy seekers, on political parties, and on elections.
What mass in grams should the chemist use : A chemist wants to make 6.5 L of a 0.270 M solution. What mass in grams should the chemist use?
Probability tha lenses contains five defective lenses : If there is evidence that percentage of polished lenses that contain surface defects does not exceed 2%. A random sample of 240 lenses contains 5 defective lenses.
Topics in american history : Briefly discuss the strengths and weaknesses of both the Articles of Confederation and the Constitution. What were the concerns with each document?

Reviews

Write a Review

Accounting Basics Questions & Answers

  Compute depreciation and cash flow

Ohare Company's only asset as of January 1, 2007, was limousine. During 2007, only three transactions occurred:

  Abc system activities-unit-related

Discuss the differences between unit-related, batch-related, and product-sustaining activities. Give one example of each type of activity.

  What is neary capital balance after kansas investment

The capital balance for Bolcar is $110,000 and for Neary is $40,000. These two partners share profits and losses 70 percent (Bolcar) and 30 percent (Neary). Kansas invests $50,000 in cash into the partnership for a 30 percent ownership. The bonus ..

  Budgets for different types of organizations

Please address the differences in creating budgets for the following entities: manufacturing, non-manufacturing, serviced-based business, and not-for-profit organizations.

  Financial statement analysis

he gross profit on the sale of a pair of shoes is 39%,if expenses are 25% of the selling price and the cost price is $17.95, what is the selling price and the gross profit in dollars?

  Discuss the significant differences between two approaches

The convergence process is likely to lead to the acceptance of the IFRS approach. Explain whether or not you agree with this decision.

  Corporation as a contribution to capital

Mary and Jane, unrelated taxpayers, hold Gray Corporation's stock equally. One year before the complete liquidation of Gray, Mary transfers land (basis of $600,000, fair market value of $180,000) to Gray Corporation as a contribution to capital.

  Declining-balance method of depreciation

A company that changes from the declining-balance method of depreciation for previously recorded assets to the straight-line method should report the change as a(n)

  Auditors responsibility for internal control

The Sarbanes Oxley Act of 2002 had a profound impact on management and auditors' responsibility for internal control. Please let us know how things changes for both management and auditors after the passage of Sarbanes Oxley as it relates to inter..

  How might we finance them

In the spotlight about FedEx Corporation, you get a feel for the amount of investment in assets and the resulting liabilities that are required to operate a competitive corporation.

  Explain he circumstances that result different treatments

Explain and justify the difference between the treatment of estimated uncollectible taxes in fund accounting and the treatment of estimated bad debts in commercial accounting.

  Payout ratio of a firm

Considering other things are held constant...how do each of the following three scenarios would affect the payout ratio of a firm?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd