P24-23B
Using ROI, RI, and EVA to evaluate investment centers
File name: Secure Life Inc.docx File type: .docx PRICE: $10
Consider
the following condensed financial statements of Secure Life, Inc. The company’s
target rate of return is 12% and its WACC is 9%:
SECIRE LIFE INC.
Comparative Balance Sheet
As for December 31, 2013 and 2012
Assets
2013
2012
Cash $82,000 $50,000
Accounts
receivable $4,000 20,500
Supplies 1,000 500
Property,
Plant and equipment, net 275,000 180,000
Patents,
net 138,000 99,000
Total
assets $550,000 $350,000
Liabilities
and Stockholder’s Equity
Accounts
payable $40,000 $32,000
Short
term notes payable 135,000 45,000
Long-term
notes payable 170,000 125,000
Common
stock, nopar 150,000 130,000
Retained
earnings 55,000 18,000
Total
liabilities and stockholders’ equity $550,000 $350,000
SECURE LIFE,INC
Income Statement
For the Year Ended December 31,
2013
Sales
revenue $6,750,000
COGS 3,200,000
Gross
profit $3,550,000
Operating
expenses 1,525,000
Operating
income $2,025,000
Other:
Interest Expense (17,000)
Income
before income tax expense $2,008,000
Income
tax expense (702,800)
Net
income $1,305,200
Requirements
1.
Calculate the company’s profit margin. Interpret your results.
2.
Calculate the company’s asset turnover. Interpret your results.
3.
Use the expanded ROI formula to confirm your results from Requirement
1.Interpret your results.
4.
Calculate the company’s RI. Interpret your results.
5.
Calculate the company’s EVA. Interpret your results.
P
24-23B
TUTORIAL PREVIEW
Req.
1
|
Profit
margin
|
=
|
Operating
income
|
|
Sales
|
The
profit margin for Secure Life is 30%.
($2,025,000 ÷ $6,750,000 = 0.3)File name: Secure Life Inc.docx File type: .docx PRICE: $10
