Question
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
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 |
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