Sprint Company has the following data for 2011:
Division A Division B
Sales $400,000 $300,000
Contribution margin 160,000 125,000
Operating income 80,000 30,000
Average operating assets 320,000 200,000
Weighted average cost of capital 15% 15%
Sprint Company has a target ROI of 20 percent.
Calculate the following amounts for each division:
Make sure you have answers for Division A & B. Also make sure your answers are in the appropriate format.
a. Margin ratio
b. Turnover ratio
d. Residual income
Must show work.
a. Margin = Operating Income/Sales
Margin = 80,000/400,000 = 20%
Division B = 30,000/300,000 = 10%
b. Turnover Ratio = Sales/Average Operating Assets
The solution explains how to calculate margin ratio, turnover ratio, ROI, Residual income and EVA