# 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_