Question
Baird Technologies, Inc. has three divisions. Baird has a desired rate of return of 13.0 percent. The operating assets and income for each division are
Baird Technologies, Inc. has three divisions. Baird has a desired rate of return of 13.0 percent. The operating assets and income for each division are as follows:
Divisions | Operating Assets | Operating Income | |||||
Printer | $ | 560,000 | $ | 98,000 | |||
Copier | 830,000 | 97,940 | |||||
Fax | 380,000 | 55,860 | |||||
Total | $ | 1,770,000 | $ | 251,800 | |||
Baird headquarters has $122,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
Expected ROIs for | ||
Divisions | Additional Investments | |
Printer | 14.5 | % |
Copier | 13.5 | % |
Fax | 12.5 | % |
Required
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a-1. Calculate the ROI for each division.
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a-2. Which division manager is currently producing the highest ROI?
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b. Based on ROI, which division manager would be most eager to accept the $122,000 of investment funds?
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c. Based on ROI, which division manager would be least likely to accept the $122,000 of investment funds?
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d. Which division offers the best investment opportunity for Baird?
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g. Calculate the residual income:
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(1) At the corporate (headquarters) level before the additional investment.
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(2) At the division level before the additional investment.
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(3) At the investment level.
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(4) At the division level after the additional investment.
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