ROI and Residual Income: Basic Computations

Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.

	Trucking Division	Seafood Division	Construction Division
Sales	$1,200,000	$810,000	$900,000
Operating assets	600,000	270,000	340,000
Net operating income	97,000	53,000	55,000

(a) Compute the return on investment for each division. (Round answers to three decimal places.)
Trucking ROI = Answer
Seafood ROI = Answer
Construction ROI = Answer

(b) Compute the residual income for each division.

Residual Income	Trucking	Seafood	Construction
Net operating income	$Answer	$Answer	$Answer
Minimum level	Answer	Answer	Answer
Residual income	$Answer	$Answer	$Answer