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Magee and Earst, Inc. have a fiscal year ending October, 31. Based on the following information,...

Question:

Magee and Earst, Inc. have a fiscal year ending October, 31. Based on the following information, what is the company's residual operating income(ROPI) for the year ended October 31, 2014?

October 31 2014 2013
Cash $5320 $4830
Net operating working capital $2050 1100
Net long-term operating assets $3120 $3100
Net nonoperating obligations $900 $700
Net operating profit after tax $650 $540
Weighted average cost of capital 6.5% 7.0%

a) $267

b) $377

c) $314

d) $356

e) None of the above

Operating Income:

The operating income is calculated through the measurement of the realized profit from the operation of the company. The operating expenses are subtracted from the business operation for the determination of operating income.

Answer and Explanation:

_Calculation of Residual Operating Income_

ROPI = {eq}NOPAT- (NOA_{Beg} * Weighted average cost of capital) {/eq}

NOA = Net operating working Capital +Net Long term Operating Cost

NOA for year 2013 = $1100+$3100

=$4200

ROPI = $650-($4200*0.065)

= $650-$273

=$377

_Correct Anwer_b_


Learn more about this topic:

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Operations of an Income Statement

from Accounting 101: Financial Accounting

Chapter 8 / Lesson 5
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