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: Division A Division B Division C Sales $ 7,200,000 $ 11,200,000 $10,300,000 Average operating assets $ 1,440,000 $ 5,600,000 $ 2,060,000 Net operating income $ 453,600 $ 1,153,600 $ 365,650 Minimum required rate of return 26.809 20.60% 23.00% 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 yleld a 25% 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. Req 1 Reg 2 Reg 3A Reg 38 Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI % % Division A Division B Division C % % % % Average operating assets Net operating income Minimum required rate of return $ 1,440,000 $ 453,600 26.004 $ 5,600,000 $2,060,000 $ 1,153,680 $ 365,650 20.60% 23.004 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 25% 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. Req 1 Reg 2 Reg Reg 3B 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 Residual income (loss) Division B 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 25% 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 a Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Reg 3B Assume that each division is presented with an investment opportunity that would yield a 25% 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 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turno 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 25% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportur b. If performance is being measured by residual income, which division or divisions will probably accept or reject t Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A Red 38 Reg 38 Assume that each division is presented with an investment opportunity that would yield a 25% rate of return. If performa is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C
