Chapter 10: Question 5

Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:

value: 16.66 points You did not recelve full credit for this question in a previous attempt Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Division A Division B Division C Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets $ 1,210,000 $1,281,000 1,316,000 956,000 72,000 60,000 4,640,000 748,000 83,000 67,000 11,587,000 941,000 71,000 60,000 2,823,000 Wescott is considering an expansion project in the upcoming year that will cost $7.2 million and return $653,000 per year. The project would be implemented by only one of the three divisions. Required 1. Compute the ROI for each division. (Do not round your intermediate calculations. Round your percentage answer to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.)) ROI Division A Division B Division 9% 2. Compute the residual income for each division. (Loss amounts should be indicated by a minus sign.) Residual income Loss) Division A Division B Division 3. Rank the divisions according to the ROI and residual income of each. Rank Division A Division B Division C