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Parkinson Company provides the following financial data: Income from operations $200,000 ...

Question:

Parkinson Company provides the following financial data:

Income from operations $200,000

Interest expense $45,000

Gains/(losses) on sale of equipment ($2,500)

Net income $152,500

Total assets at Jan 1 $2,600,000

Total assets at Dec 31 $3,200,000

How much is the return on investment?

A) 7.2%

B) 6.3%

C) 6.9%

D) 5.3%

Return on Investment:

Return on investment is a performance measure for evaluating how well a business utilizes assets; it serves as a return ratio and is used in business decision to evaluate company's profitability or compare different investment decisions.

The drawback of return on investment is that when used as a projection for future returns, the equation does not factor risk and higher projected returns may deceive investors.

Answer and Explanation:

Return on investment is calculated as:

  • Return on investment = Net income / Average Assets
  • Average Assets = (Assets at beginning + Assets at end)/2
  • Av...

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Return on Investment: Definition, Formula & Example

from Intro to Business: Help and Review

Chapter 25 / Lesson 6
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