The following information relates to last year's operations at the Legumes Division of Gervani Corporation:

Minimum required rate of return 12 %

Return on investment (ROI) 15 %

Sales $ 900,000

Turnover (on operating assets) 3 times

What was the Legume Division's net operating income last year? Multiple Choice

a. $108,000

b. $135,000

c. $36,000

d. $45,000

The Legume Division's net operating income last year was d. $45,000

Explanation:

Turnover (on operating assets) = Total Sales / Operating assets

From the formula,

Operating assets = Total Sales/Turnover (on operating assets) = $900,000/3 = $300,000

Return on investment (ROI) is calculated by using following formula:

ROI = Net income/Total investment

Net Income = ROI x Total investment

At the Legumes Division of Gervani Corporation, Total investment = Operating assets = $300,000

Net Income = 15% x $300,000 = $45,000