This is tricky because the formula for ROI can have many variations. However, according to my Wiley study package, the official formula for the CMA exam is "Income / Assets". They must consider net working capital in this problem to be a current asset, but that's not technically true as NWC = current assets - current liabilities.
I'm not sure what advice to offer if you come across a MCQ like this on the exam. However, if it comes up on the essay component, be sure to show your work and explain your reasoning for including or excluding net working capital. You clearly know the formula, so you'll get full or close to full credit if you detail out your calc.
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Michael Ramsey
Director/Manager
Omaha NE
United States
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Original Message:
Sent: 11-22-2020 10:28 AM
From: Derrick Durbin
Subject: ROI Calculation
Hello,
In this problem shown below why is net working capital used in the ROI calculation? Is this because it's considered a current asset?
A company has recently implemented responsibility accounting in all 7 segments of the company. The following information is available for Segment W for the last quarter.Net working capital | $1,200,000 |
Property, plant, and equipment, net | 3,175,000 |
Revenues | 8,000,000 |
Cost of sales | 6,350,000 |
General and administrative expenses | 180,000 |
Based on the information provided, if the company treats Segment W as an investment center, what is the return on investment for the last quarter?