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3 Compute the Return on Investment (ROI) and Residual Income The following data pertain to the Glengarry Division of Brown Company: Divisional contribution margin Profit
3 Compute the Return on Investment (ROI) and Residual Income The following data pertain to the Glengarry Division of Brown Company: Divisional contribution margin Profit margin controllable by the divisional manager Profit margin traceable to the division Average asset investment $ 700,000 320,000 294,400 1,280,000 The company uses responsibility accounting concepts when evaluating performance, and Glengarry's division manager is contemplating the following three investments. He can invest up to $400,000. Cost Expected income No. 1 $250,000 No. 2 $300,000 50,000 54,000 No. 3 $400,000 96,000 Required: A. Calculate the ROIs of the three investments. B. Which of the three investments would be selected if the manager's focus is on Glengarry's divisional performance? Why? C. If Brown has an imputed interest charge of 22%, compute the residual income of investment no. 3. Is this investment attractive from Glengarry's perspective? From Brown's perspective? Why
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