As the manager of Losen division of McCarthy Corporation, you are interested in determining the division's return on investment. As division manager, you have no control over financing assets, but you control acquisition and disposition of assets. The division controller has given you the following data to aid you in calculating return on investment.
Fiscal year, January 1 to December 31(000 omitted)
Total assets, January 1 $400,000
Total assets, December 31 525,000
Long-term debt, January 1 75,000
Long-term debt, December 31 96,000
Owners equity, January 1 278,000
Owners equity, December 31 303,000
Net income for the year 54,000
Interest expense on long-term debt 4,200
Tax rate- 30%
Required:
What method would be most appropriate for calculating the division's return on investment (ROI)? Why? Using this method, what is ROI for the current year?