Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 6,400,000 $ 1,600,000 $ 352,000 18.000 Division B Division c $ 19,400,000 $9,500,000 $ 5,200,000 $ 2,375,000 $ 988,000 $ 261,250 19.000 15.00 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 19% 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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Reg 38 Compute the residual income (loss) for each division. (Do not round intermediate calculations. Loss amounts should be indicated by a minus sign.) Division A Division B Division Residual income foss) Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [L010-1, LO10-2) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 6,400,000 $ 1,600,000 $ 352,000 18.000 Division B $ 10,400,000 $ 5,200,000 $ 988,000 19.000 Division c $ 9,500,000 $ 2,375,000 $ 261,250 15.009 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 19% 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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req Req 3B Assume that each division is presented with an investment opportunity that would yield a 19% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? -.- Division A Division B Division C Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO10-1, LO10-2) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 6,400,000 $ 1,600,000 $ 352,000 18.000 Division B $ 10,400,000 $ 5,200,000 $ 988,000 19.000 Division c $ 9,500,000 $ 2,375,000 $ 261,250 15.000 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 19% 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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Reg 38 Assume that each division is presented with an investment opportunity that would yield a 19% rate of return. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C
