The Engine Division of The Cleveland Automotive Corporation had sales of $7,200,000 and an operating income of

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Question:

The Engine Division of The Cleveland Automotive Corporation had sales of $7,200,000 and an operating income of $864,000 last year. The total assets of the Engine Division were $3,200,000 while current liabilities were $800,000. The Cleveland Automotive Corporation's target rate of return is 13% while its weighted average cost of capital is 9%. The effective tax rate for the company is 45%.

Required:

a. Calculate the sales margin.

b. Calculate capital turnover.

c. Calculate the return on investment (ROI).

d. Calculate the residual income.