Ch 12 problem

Wally Steel Division is a unit of Wally Industries, which produces tool and die machinery for manufacturers. The steel division operates as one of several separate investment centres of Wally Industries. The investment centres are evaluated on the basis of ROI. Management bonuses are also based on ROI. All investments in operating assets are expected to earn a minimum rate of return of15%. Divisional ROI of the steel division has ranged from 17% to 20% since it was acquired by the parent company. During the past year. the steel division had an investment opportunity that would yield an estimated rate of return of17%. But the divisional management decided against the investment because it believed the investment would decrease the division's overall ROI. Last year's income statement for Wally Steel Division is given below. The division's operating assets employed were $12,320,000 at the end ofthe year, which represents an 12% increase over the previous year-end balance. WALLS? STEEL DIVISION Divisional Income Statement For the Year Ended December 31 Sales S 15,646,400 Cost of goods sold 12,517,100 Gross margin 3,129,300 Less: Operating expenses: Selling expenses 5 751,000 Administrative expenses 500,700 1,251,700 Net operating income 5 1,877,600 Required: 1. Compute the average operating assets for the year. Average operating assets I 2. Compute the ROI of the division. State the ROI in terms of margin and turnover. (Round intermediate calculation to 2 decimal places. Enter your percentage answer rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ROI \"Ii: 3. Compute the residual income for the steel division. : 4. This part of the question is not part of your Connect assignment. 5. Would last year's investment opportunity have been rejected if RI were used as a performance measure instead of ROI? 0 Yes 0 No