Problem:
As the manager of Losen Division of McCarthy Corporation, you are interested in determining the division's return on investment. As division manager, you have no control over financing assets, but you control acquisition and disposition of assets. The division controller has given you the following data to aid you in calculating return on investment:
| Fiscal Year, January 1 to Decembr 31 (000 omitted): |
| Total Assets, January 1 |
$400,000 |
| Total Assets, December 31 |
$525,000 |
| Long-term debt, January 1 |
$75,000 |
| Long-term debt, December 31 |
$96,000 |
| Owner's Equity, January 1 |
$278,000 |
| Owner's Equity, December 31 |
$303,000 |
| Net Income for the Year |
$54,000 |
| Interest Expense on Long-term debt |
$4,200 |
|
|
| Tax rate = 30% |
|
Requirement:
What method would be most appropriate for calculating the division's return on investment (ROI)? Using this method, what is ROI for the current year?