A multinational corporation has a number of divisions, two of which are the Granite Divi¬

sion and the Brick Division. Data on the two divisions are:

Required:
1. Compute residual income for each division. By comparing residual income, is it possi¬
ble to make a useful comparison of divisional performance? Explain.
2. Compute the residual rate of return by dividing the residual income by the average oper¬
ating assets. Is it possible now to say that one division outperformed the other? Explain.
3. Compute the return on investment for each division. Can we make meaningful com¬
parisons of divisional performance? Explain.
4. Add the residual rate of return computed in Requirement 2 to the required rate of re¬
turn. Compare these rates with the ROI computed in Requirement 3. Will this rela¬
tionship always be the same?

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Granite Brick Sales $2,000,000 $7,000,000 Average operating assets 900,000 4,000,000 Net operating income 108,000 440,000 Minimum required return 9% 9%