23.

value: 5.78 points

Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO1, LO2]

Selected sales and operating data for three divisions of three different companies are given below:

	Division A			Division B			Division C
Sales	$	5,700,000		$	9,700,000		$	8,800,000
Average operating assets	$	1,140,000		$	4,850,000		$	1,760,000
Net operating income	$	273,600		$	853,600		$	180,400
Minimum required rate of return		17	%		17.6	%		14	%

Required:
1.	Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Margin	Turnover	ROI
Division A	%		%
Division B	%		%
Division C	%		%

2.	Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)

	Division A	Division B	Division C
Residual income	$	$	$

3.	Assume that each division is presented with an investment opportunity that would yield a rate of return of 19%.

a.	If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

Division A	(Click to select)AcceptReject
Division B	(Click to select)AcceptReject
Division C	(Click to select)AcceptReject

b.	If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Division A	(Click to select)AcceptReject
Division B	(Click to select)RejectAccept
Division C	(Click to select)RejectAccept

23 578 points Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [L01, LO2] Selected sales and operating data for three divisions of three different companies are given below: Division A Division B Division C Sales $5,700,000 $9,700,000 $8,800,000 Average operating assets 40,000 $4,850,000 $1,760,000 Net operating income S 273,600 853,600 80,400 Minimum required rate of return 7% 7.6% 4% Required: 1. Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mal Turnover Division A Division B Division C 2. Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank be certain to enter "0" wherever required. Division A Division B Division C Residual 3. Assume that each division is presented with an investment opportunity that would yield a rate of return 9% a. If performance is being measured by Roi, which division or divisions will probably accept or reject the opportunity? Click to select Division A Click to select Division B Click to select Division C b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Click to select Division A Click to select Division B Click to select Division C