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 Division Division salen $ 5,100,000 $ 9,200,000 $ 8,200,000 Average operating assets $ 1,020,000 $ 2,275,000 $1,640,000 Net operating income 214,200 $ 746,200 $ 118,900 Minimum required rate of return 17.000 32.800 14.000 $ Required: 1. Compute the return on investment (ROI) for each division using the formulo 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 38 Reg 1 Reg 2 Reg JA 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 % % *** % Reg 2 > 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 $ 5,100,000 $ 1.020,000 $ 214,200 17.000 Division B $ 9,100,000 $ 2,275,000 $ 746,200 32.80% Division c $ 8,200,000 $ 1,640,000 $ 118,900 14.008 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. Req1 Req2 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 Division C Residual income (105) 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 $ 5,100,000 $ 1.020,000 $ 214,200 17.00) Division 3 Division c $9,100,000 $8,200,000 $ 2,275,000 $1,640,000 $ 746,200 $ 118,900 32.801 14.000 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 (oss) 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 REJA 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 ROI, which division or divisions will probably accept or reject the opportunity? Dwision Division B Division 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 3 Division Sales $ 5,100,000 $ 9,100,000 $ 8,200,000 Average operating assets $1,020,000 $ 2,275,000 5 1,640,000 Net operating income $ 214,200 $ 746,200 $ 118,900 Minimum required rate of return 17.00 32.800 14.00 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 Reg 3A Reale Assume that cach 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
