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1. The following 2010 information is available for Cornwall Industries: average assets invested, $7,200,000; revenues, $26,400,000; and expenses, $24,600,000.
a. Calculate return on investment.
b. Calculate profit margin.
c. Calculate asset turnover.
d. Using (b) and (c), prove your answer to (a).
e. Assuming Cornwall’s cost of capital is 14 percent, compute the 2010 residual income.
2. Double K Corp. has established a 12 percent target ROI for 2010 for its Jamestown Division. “The following data have been gathered for the division’s operations for 2010: average total assets, $11,200,000; revenues, $30,000,000; and expenses, $28,000,000. What is the division’s residual income? Did the division successfully meet the target ROI?
3. Schulz GmbH, a German company, set an 18 percent target rate of return for its U.S. division for 2010. For 2010, the U.S. division generated $39,000,000 of revenue on average assets of $25,000,000. “The division’s variable costs were 45 percent of sales, and fixed costs were $6,750,000. Compute the following items for the U.S. division for 2010:
a. ROI
b. Residual income
c. Profit margin
d. Asset turnover

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