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Exercise 11-12 Evaluating New Investments Using Return on Investment and Residual Income (LO3, LO4) Three divisions of Jameson Co. report the following sales and operating
Exercise 11-12 Evaluating New Investments Using Return on Investment and Residual Income (LO3, LO4) Three divisions of Jameson Co. report the following sales and operating data: Sales Average operating assets Operating income Minimum required rate of return Pitness Training $ 610,000 $152,500 $ 24,400 130 Spa Services $ 810,000 $ 202,500 $ 32,400 15* Athletic Wear $ 600,000 $ 150,000 $ 30,000 131 Required: 1. Compute the ROI for each division, using the f&rmula stated in terms of margin and turnover ROI Fitness training Spa services Athletic wear % % % 2. Compute the residual income for each division 2 Fitness Training Spa Services Athletic Wear Residual income 0.66 points eBook References 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 20% a. If performance is being measured by Rot, which division or divisions will probably accept the opportunity? Fitness Training Spa Services Athletic Wear 2 b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? 0.66 olets Fitness Training Spa Services Athletic Wear eBook References
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