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Brower Company has two divisions: East Division and West Division. Data on the two divisions are as follows: East Division West Division Sales $1,590,000 $410,000
Brower Company has two divisions: East Division and West Division. Data on the two divisions are as follows: East Division West Division Sales $1,590,000 $410,000 Expenses $1,220,000 $270,000 Operating assets, Jan. 1 $3,160,000 $920,000 Operating assets, Dec. 31 $3,140,000 $960,000 Brower management set a hurdle rate of 12% in evaluating performance and new investment. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300) 1. Residual income for the East Division is $ Residual income for the West Division is $ Which division is doing better based on residual income with a 12% hurdle rate? Why is residual income negative for one of the divisions? 2. Now change the hurdle rate to 10%. Residual income for the East Division is $ Residual income for the West Division is $ Which division is doing better based on residual income with a 10% hurdle rate? 3. In general, residual income tends to favor
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