The Excel worksheet form that follows is to be used to recreate the Review Problem related to Medical Diagnostics, Inc. Download the workbook containing this from Connect. On the website you will also receive instructions about how to use this worksheet form.

You should proceed to the requirements below only after completing your worksheet.
Required:
1. Check your worksheet by changing the average operating assets in cell B6 to $8,000,000. The ROI should now be 38% and the residual income should now be $1,000,000. If you do not get these answers, find the errors in your worksheet and correct them.
Explain why the ROI and the residual income both increase when the average operating assets decrease.
2. Revise the data in your worksheet as follows:
Data
Sales.................................................. $1,200
Net operating income................................... $72
Average operating assets............................ $500
Minimum required rate of return..................... 15%
a. What is the ROI?
b. What is the residual income?
c. Explain the relationship between the ROI and the residual income?

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1 Chapter 12: Applying Excel 3 Data 4 Sales 5 Net operating income 6 Average operating assets 7 Minimum required rate of retum 525,000,000 $3,000,000 510,000,000 25% 9 Enter a formula into each of the cells marked with a ? below 10 Review Problem: Return on Investment (ROl) and Residual Income 12 Compute the ROI 13 Margin 14 Turnover 15 ROI 16 17 Compute the residual income 18 Average operating assets 19 Net operating income 20 Minimum required retum 21 Residual income 44 Chapter 12 ForFiled in Chapter 12 Form