Exercise $10-12($Algo$)$ Evaluating New Investments Using Return on Investment $($ROI$)$ and Residual

Income $[$L$010-1,$ LO$10-2]$

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

Required:

Compute the return on investment $($ROI$)$ for each division using the formula stated in terms of margin and turnover.

Compute the residual income $($loss$)$ for each division.

Assume that each division is presented with an investment opportunity that would yield a $15\%$ rate of return.

a$.$ If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

b$.$ If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?