Balance sheet:Year 3 Year 2 Year 1Assets Average Balance Average Balance Average BalanceCash $11,776 $6,720 $5,200Accounts receivable 10,752 8,320 4,600Inventory 13,312 7,360 4,200Total current assets $35,840 $22,400 $14,000Property, plant, and equipment (net) 38,400 24,000 15,000Land (held for sale) 5,000 5,000 5,000Total assets $79,240 $51,400 $34,000Liabilities and owners' equity Accounts payable 9,216 5,760 3,600Other current liabilities 7,132 5,020 3,700Total current liabilities $16,348 $10,780 $7,300Long-term liabilities 0 0 0Total Liabilities $16,348 $10,780 $7,300Total owner's equity 62,892 40,620 26,700Total liabilities and owners' equity $79,240 $51,400 $34,000The income statement indicates sales increased 30 percent from year 1 to year 2 and 35 percent from year 2 to year 3. Net income increased 14 percent from year 1 to year 2, and 18 percent from year 2 to year 3. One member on the committee, Vivian Bentley, would like to offer the CEO a multiyear extension with a significant bump in salary and thousands of shares of stock options. When questioned why, Vivian pointed to the positive results reflected on the income statement.Another committee member, Carter Posey, agrees with Vivian that income statement trends look great, but she would like to review other measures of performance as well. Carter has asked you to come up with two measures of performance that go beyond simply looking at the income statement.Calculate return on investment for each of the three years. Note that balance sheet amounts presented for each year are already average balances (i.e., no need to calculate average balances). Assume land held for sale is not an operating asset.Calculate residual income for each of the three years assuming the company's cost of capital rate is 12 percent.Summarize and explain your findings in parts 1 and 2 to the committee.

Tori's Fashion, Inc. Income Statement (dollar amounts are in thousands) Year 3 Year 2 Year 1 Sales $96,525 $71,500 $55,000 Cost of good sold , , , Gross margin $67,567 $50,050 $38,500 Selling and administrative expenses ,m , Q,M Operating income $7,367 $6,250 $5,500 Income tax expense (30% rate) 2,210 L 1,650 Net income _,157 $A, _ 3,850